UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                  ANNUAL REPORT

                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000      COMMISSION FILE NUMBER 0-12050

                       SAFEGUARD HEALTH ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                      52-1528581
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation  or  organization)

                                  95 ENTERPRISE
                       ALISO VIEJO, CALIFORNIA 92656-2605
              (Address of principal executive offices) (Zip Code)

                                  949.425.4300
              (Registrant's telephone number, including area code)
                                  949.425.4586
            (Registrant's fax telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

          Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $0.01 PAR VALUE

                                      NONE
                       (Name of exchange on which listed)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.

                                YES [X]  NO [ ]

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-K  is  not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [X]

The  aggregate  market  value  of the voting stock held by non-affiliates of the
registrant  as  of  March  15, 2001, was $7,206,480. The number of shares of the
registrant's  common  stock outstanding as of March 15, 2001, was 4,737,498 (not
including  3,257,788  shares  held  in  treasury).


<PAGE>
                       SAFEGUARD HEALTH ENTERPRISES, INC.
                               INDEX TO FORM 10-K

                                                                           PAGE
                                                                           ----

PART  I:

     Item  1.     Business . . . . . . . . . . . . . . . . . . . . . . . . . .1

     Item  2.     Properties . . . . . . . . . . . . . . . . . . . . . . . . 16

     Item  3.     Legal  Proceedings . . . . . . . . . . . . . . . . . . . . 17

     Item  4.     Submission of Matters to a Vote of Security Holders . . . .17

PART  II:

     Item  5.     Market for Registrant's Common Equity and Related
                  Stockholder Matters . . . . . . . . . . . . . . . . . . . .18

     Item  6.     Selected  Financial  Data . . . . . . . . . . . . . . . . .19

     Item  7.     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations . . . . . . . . . . . .20

     Item  7A.    Quantitative and Qualitative Disclosures About
                  Market Risk . . . . . . . . . . . . . . . . . . . . . . . .26

     Item  8.     Financial Statements and Supplementary Data . . . . . . . .26

     Item  9.     Changes  in  and Disagreements with Independent
                  Accountants on Accounting and Financial Disclosure. . . . .26

PART  III:

     Item  10.    Directors  and  Executive  Officers  of  the  Registrant. .27

     Item  11.    Executive  Compensation. . . . . . . . . . . . . . . . . . 30

     Item  12.    Security Ownership of Certain Beneficial Owners and
                  Management. . . . . . . . . . . . . . . . . . . . . . . . .32

     Item  13.    Certain  Relationships  and Related Transactions. . . . . .33

PART  IV:

     Item  14.    Exhibits,  Financial Statement Schedules, and
                  Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . 34

SIGNATURES        . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35


<PAGE>
                                     PART I

ITEM  1.  BUSINESS
------------------

In  addition  to  historical  information,  the  description  of  business below
includes  certain  forward-looking  statements  regarding  SafeGuard  Health
Enterprises,  Inc.  (the  "Company"),  including  statements about growth plans,
business  strategies,  future  operating  results  and  financial  position, and
general  economic  and market events and trends. The Company's actual results of
operations for future periods could differ materially from the results indicated
in  the  forward-looking statements as a result of various events that cannot be
predicted  by  the  Company.  Those  possible  events  include  an  increase  in
competition,  changes  in  health  care  regulations, an increase in dental care
utilization rates, new technologies, an increase in the cost of dental care, the
inability  to  efficiently  integrate the operations of acquired businesses, the
inability  to  realize  the  carrying  value  of the escrow account containing a
portion  of  the  proceeds  from the re-sale of the assets of certain dental and
orthodontic  practices,  the  inability to realize the carrying value of certain
long-term promissory notes, and other risks and uncertainties as described below
under  "RISK  FACTORS."  The  following  should  be read in conjunction with the
Consolidated  Financial  Statements  of  the  Company  and  Notes  thereto.

(a)  GENERAL  DEVELOPMENT  OF  BUSINESS

The  Company,  a  Delaware corporation, provides managed care dental plans (also
referred to as "dental HMOs"), preferred provider organization ("PPO")/indemnity
dental  plans,  vision  benefit  plans,  administrative  services, and preferred
provider  organization  services.  The  Company  conducts its business through a
number of subsidiaries, one of which is an insurance company that is licensed in
a number of states, and a number of which are managed care dental plans that are
each  licensed  in  the state in which it operates. The Company's operations are
primarily  in California, Texas and Florida, but it also operates in a number of
other  states.

The  Company's  predecessor,  SafeGuard  Health  Plans,  Inc.,  a  California
corporation, (the "California Plan") commenced operations in 1974 as a nonprofit
corporation. The California Plan converted to for-profit status in December 1982
and  is  currently  a subsidiary of the Company. The Company was incorporated in
California  in  November 1982 and acquired the California Plan in December 1982.
In  August  1987  the  Company  reincorporated  in  Delaware. Unless the context
requires  otherwise,  all  references  to  the  "Company"  or  "SafeGuard"  mean
SafeGuard  Health  Enterprises,  Inc.  and  its  subsidiaries.

The  Company  completed  four  acquisitions during the past several years, which
account  for  a  significant  portion  of  the  Company's current operations. In
September  1992,  the  Company  acquired a California life insurance company and
used  this entity to begin offering PPO/indemnity dental plans to its customers.
In  August  1996,  the Company acquired a managed care dental company located in
Texas,  which had approximately $12 million of annual revenue at the time of the
acquisition.  In  May  1997,  the Company acquired a managed care dental company
located  in Florida, which had approximately $7 million of annual revenue at the
time  of the acquisition. In August 1997, the Company acquired another insurance
company,  which had no active business but was licensed in a number of states in
which  the  Company  was  not  previously  licensed.

The  Company sold all of its general dental practices in 1996 and 1997, and sold
all  of  its  orthodontic practices in 1998. The proceeds from all of these sale
transactions  consisted of long-term promissory notes. All revenues and expenses
related  to  the  general  dental  practices  and  the orthodontic practices are
reflected  under  "discontinued  operations"  on  the  accompanying  financial
statements.

Certain  of  the  general  dental practices and all of the orthodontic practices
were  sold to a single purchaser (the "Purchaser"), in exchange for an aggregate
of  $23.0  million of long-term promissory notes. In addition, in 1997 and 1998,
other  entities that previously purchased four general dental practices from the
Company conveyed those practices to the Purchaser in exchange for the assumption
of  the  related promissory notes payable to the Company. Those promissory notes
had  an  aggregate  outstanding principal balance of $1.9 million at the time of
those conveyances. In addition, during 1997 and 1998, the Company loaned a total
of $1.6 million to the Purchaser, which was used for working capital purposes by


                                      -1-
<PAGE>
the  Purchaser.  Due  to  uncertainty  about the Purchaser's ability to meet its
commitments to the Company under the promissory notes, the Company did not treat
the transactions with the Purchaser as sales for accounting purposes. See Note 2
to  the  accompanying  financial  statements  for  more  information  about  the
accounting  treatment  applied  to  these  transactions  with the Purchaser. The
Purchaser  ultimately  defaulted on its obligations to the Company, and in 2000,
the  Company completed a transaction in which the general dental and orthodontic
practices  sold  to  the Purchaser were re-sold to another third party (the "New
Purchaser").  Pursuant  to  this transaction, a portion of the sale proceeds was
placed into an escrow account, pending satisfaction of certain conditions by the
Company,  and  the  Company  agreed  to  pay  certain obligations related to the
practices  sold,  for  which  the  Company  may  be  contingently  liable. These
obligations  consisted  primarily  of  dental  office  lease obligations and the
obligation  to complete the orthodontic treatments for managed care patients who
previously  paid  for  the  treatments in full. The amount of the escrow account
that  will  be realized by the Company, and the ultimate cost of the obligations
assumed  by  the  Company,  are  subject  to  uncertainties.  See  Note 2 to the
accompanying  financial  statements for more information about this transaction.

The  Company's  executive  offices  are  located  at 95 Enterprise, Aliso Viejo,
California  92656-2605.  Its telephone number is 949.425.4300 and its fax number
is  949.425.4586.

DENTAL  CARE  MARKETPLACE

According  to  the  United States Health Care Financing Administration ("HCFA"),
total  expenditures for dental care in the United States grew from approximately
$31.5  billion in 1990 to an estimated $56.0 billion in 1999. HCFA also reported
that  expenditures for dental services accounted for approximately 4.6% of total
national  health  care  expenditures during 1999. According to the United States
Bureau of Labor Statistics (the "BLS), the cost of dental services has increased
in  recent  years  at a rate higher than that for consumer goods as a whole. The
consumer  price  index  for dental services for all urban consumers increased by
25.4%  from  1994  to 1999, while the consumer price index for all items for all
urban  consumers  increased  by  12.4%  during  the  same period. As a result of
increases  in  the  cost of dental services, the Company believes that employers
and  other  purchasers  of  dental  care benefits have a significant interest in
effectively  managing  the  cost  of  dental  care  benefits.

The  National  Association  of  Dental  Plans  (the  "NADP")  estimated  that
approximately  153  million people, or approximately 56% of the total population
of  the United States, were covered by some type of dental benefit plan in 1999.
The  NADP  also  estimated that enrollment in managed care dental plans ("dental
HMOs") has grown from approximately 17.0 million people in 1994 to approximately
27.4  million  people  in  1999.  The  Company believes the high growth rate for
dental  HMOs  in  recent  years is attributable to acceptance of managed care by
employers  and employees, a significant price advantage over conventional dental
insurance plans, and greater acceptance of dental HMOs by dentists, resulting in
improved  accessibility  and  convenience  for  members.

The  American  Association  of  Health  Plans  (the  "AAHP")  estimated  that
approximately  235  million people, or approximately 86% of the total population
of the United States, were covered by some type of medical benefit plan in 1999.
The  AAHP also estimated that enrollment in managed care medical plans ("medical
HMOs")  was  approximately  168 million people in 1999. The Company believes the
number  of  people without dental coverage represents an opportunity for managed
care  dental  companies  to  increase  their  enrollments.

In  recent  years,  there  has  been a significant increase in the enrollment in
dental  insurance  plans  that  include  preferred provider organization ("PPO")
networks.  Under  these  plans,  the  insurance company creates a PPO network by
negotiating reduced fees with dentists in exchange for including the dentists in
a  "preferred provider" list that is distributed to subscribers who are enrolled
in  the  PPO dental plan. The subscribers who are enrolled in the plan receive a
higher  level of benefits, in the form of reduced out-of-pocket cost at the time
of  service,  if  they  choose  to  receive  services  from a dentist in the PPO
network.  The  NADP  estimated that enrollment in fully insured PPO dental plans
has  grown  from  approximately 6.8 million people in 1994 to approximately 22.9
million  people  in  1999.  The Company believes that PPO dental plans have been
rapidly  gaining  in popularity because they provide customers with a balance of
cost-effectiveness  and  flexibility  in  the  choice  of  providers.

The  managed  care  dental industry is characterized by participation of several
large,  national insurance companies and numerous independent organizations. The
NADP  estimated  that  there  were  approximately  90  firms offering dental HMO
benefit  plans  in  the  United  States  in  1999.

The average monthly cost of dental insurance coverage is much lower than that of
medical  insurance  coverage.  Dental  care is provided almost exclusively on an
outpatient  basis, and general dentists, as opposed to specialists, perform most
dental  procedures.  Most  dental  problems  are not life-threatening and do not
represent  serious  impairments  to overall health. Therefore, there is a higher
degree  of  discretion  exercised  by  patients in determining whether to obtain


                                      -2-
<PAGE>
dental  services,  and  a  higher  degree  of  sensitivity to the cost of dental
services.  Many  dental  conditions  have  a  range  of  appropriate  courses of
treatment, each of which has a different out-of-pocket cost for patients who are
covered  by  a  conventional  dental insurance plan. For example, a deteriorated
filling  may  be  replaced  with  another  filling  (a  low-cost alternative), a
pin-retained  crown  build-up  (a  more  costly  alternative),  or  a crown with
associated  periodontal treatment (the most costly alternative). The design of a
patient's  dental  insurance  plan  can  have  an  impact  on the type of dental
services  selected  by the patient or recommended by the dentist. Dental benefit
plans  generally do not include coverage for hospitalization, which is typically
the  most  expensive  component  of  medical  services.

Common  features of dental insurance plans include annual deductibles of varying
amounts,  maximum annual benefits of less than $2,000 per person and significant
patient  cost-sharing.  Patient  cost-sharing  typically  varies  by the type of
dental  procedure, ranging from no cost-sharing for preventive procedures to 50%
cost-sharing  for  bridgework  or  dentures,  and  even greater cost-sharing for
orthodontic  care.  The  relatively high patient cost-sharing and the relatively
predictable  nature  of  the  need for dental services substantially reduces the
underwriting  risk of a dental insurance plan, compared to the underwriting risk
of  a  medical insurance plan, which typically covers catastrophic illnesses and
injuries.

Under  a  conventional  dental insurance plan, dentists have little incentive to
deliver  cost-effective  treatments  because  they  are  compensated  on  a
fee-for-service  basis.  In  contrast,  under  a  managed care dental plan, each
general dentist is typically reimbursed primarily in the form of a fixed monthly
payment  for  each  member who selects that dentist as his or her primary dental
care  provider  (a "capitation" payment). Under a managed care dental plan, each
dentist  also typically receives co-payments from the patient for certain dental
services,  in addition to the capitation payments. The co-payments received from
patients  mitigate the level of utilization risk assumed by the dentist, but are
typically small enough to discourage the dentist from delivering treatments that
are  not cost-effective. Capitation payments create an incentive for dentists to
emphasize  preventive care, to deliver cost-effective treatments, and to develop
a  long-term  relationship  with  their  patients.  Capitation  payments  also
substantially  reduce  the underwriting risk associated with varying utilization
of  dental  services,  from the perspective of the entity providing managed care
dental  plans.

(b)  FINANCIAL  INFORMATION  ABOUT  SEGMENTS

The  Company  has  only  one  reportable business segment, which provides dental
benefit  plans  to  employers,  individuals  and  other  purchasers.

(c)  NARRATIVE  DESCRIPTION  OF  BUSINESS

GENERAL  DESCRIPTION  OF  THE  COMPANY

The  Company  provides  dental  benefit  plans,  vision  benefit plans and other
related  products, to government and private sector employers, associations, and
individuals.  The Company currently has group contracts with over 4,000 employer
or association groups and delivers its services to approximately 750,000 covered
individuals.  Dental  care  is  provided  to  the  covered individuals through a
managed  care  network  of  approximately  3,500  general dentists and specialty
providers,  and  through  a  preferred  provider  network of approximately 7,700
dentists.

Under  the  Company's  managed  care  dental  plans, its customers pay a monthly
premium for each subscriber enrolled in the plan, and the Company usually agrees
to  a monthly rate that is fixed for a period of one or two years. The amount of
the  monthly premium varies depending on the dental services covered, the amount
of  the  member  co-payments  that  are  required  for  certain  types of dental
services,  and  the  number  of  dependents  enrolled  by  each subscriber. Each
subscriber  and  dependent  is  required  to  select  a general dentist from the
Company's  managed  care  provider  network,  and  to receive all general dental
services  from that dentist. A referral to a specialist must be requested by the
general dentist and approved in advance by the Company, in order for the cost of
the  service to be reimbursed by the Company, provided the service is covered by
the  member's  benefit  plan.  Under  managed care dental plans, subscribers and
dependents  are not required to pay deductibles or file claim forms, and are not
subject  to  a  maximum  annual  benefit.


                                      -3-
<PAGE>
Under the Company's PPO/indemnity dental plans, its customers also pay a monthly
premium for each subscriber enrolled in the plan, and the Company usually agrees
to  a  monthly  rate  that  is fixed for a period of one year. The amount of the
monthly  premium  varies depending on the dental services covered, the amount of
the  annual  deductible, the portion of the cost of dental services that is paid
by  the  subscriber  or  dependent,  the  maximum annual benefit amount, and the
number  of  dependents  enrolled  by each subscriber. Under PPO/indemnity dental
plans,  subscribers  are  required  to  pay deductibles and co-payments that are
typically  higher than the co-payments required under a dental HMO plan, and the
benefits  covered  are  typically  subject to an annual maximum amount. However,
under  PPO/indemnity  dental  plans,  subscribers  and  dependents can choose to
receive  dental  services  from  any  dentist  of  their  choice.

The  Company's  goal  is to be a leading dental benefits provider in each of the
geographic  markets in which it operates. The Company's business is primarily in
California,  Texas  and  Florida,  but  it  also  provides  dental HMO plans and
PPO/indemnity  dental  plans  in  a number of other states. The Company offers a
comprehensive  range  of dental benefit plans that is based on a set of standard
plan  designs  that  are  available  in each of the markets in which the Company
operates. By standardizing the dental plans offered, the Company believes it can
deliver  a  consistent  product and a high level of customer service through the
consistent  application  of  policies  and  procedures,  and  by  streamlining
administrative  functions.  The standardized plans also allow employers to offer
substantially  the  same benefits in all states in which the Company is licensed
to  operate.  However,  the  Company also has the information technology and the
flexibility  to  deliver  highly  customized benefit plans, which are frequently
requested  by  large  employer  groups.

The Company uses multiple distribution methods to sell its products. The Company
has  an  internal sales force that primarily works with independent brokers, and
to  a  lesser extent, directly with small and mid-sized employer groups, to sell
the Company's benefit plans. The Company also works directly with large benefits
consulting  firms,  who  are  often  engaged  by  large  employers  to assist in
selecting  the  best  dental benefit plans for those employers. The Company also
offers  its  dental  plans to medical HMOs, which in turn, include the Company's
dental  plans  in comprehensive medical plans offered by those medical HMOs. The
Company  utilizes  general  agency  relationships  in  certain  markets,  which
generally  target  small  employers  and  individuals.

The Company is committed to providing quality dental care to its members through
a  network of qualified, accessible dentists. By providing both dental HMO plans
and  PPO/indemnity  dental  plans, the Company is able to maintain a competitive
network  of  providers  by  delivering  patients to dentists under both types of
provider  reimbursement.  In  addition,  the  Company  also  offers  stand-alone
administrative  services  and preferred provider organization access products to
its  customers,  which  deliver  additional  patient  volume  to  its contracted
providers.  The  Company has provider relations representatives who maintain the
relationships  with  the  network providers in each of the Company's significant
geographic  markets.  The local knowledge and expertise of these representatives
enables the Company to develop competitive provider networks that are convenient
for  plan  members,  which  is  an  important factor to employers in selecting a
dental  HMO  plan.

ACQUISITIONS

In  1996,  the  Company  completed  the  acquisition  of  First  American Dental
Benefits,  Inc. ("First American"), a privately-held managed care dental company
based  in Dallas, Texas, for total consideration of approximately $23.6 million.
The purchase price included $20 million paid at closing and an aggregate of $3.6
million  paid  over  three years pursuant to non-competition agreements with the
former owners of First American. First American had approximately $12 million of
annual revenue at the time of the acquisition. The acquisition of First American
was  recorded  using  the  purchase  method  of  accounting,  and its results of
operations  are  included in the Company's financial statements beginning on the
date  of  acquisition.

In  1997,  the Company completed the acquisition of Advantage Dental HealthPlans
("Advantage"),  a  privately-held  managed  care  dental  company  based in Fort
Lauderdale, Florida, for total consideration of approximately $10.0 million. The
purchase  price  included  $8.5  million  paid at closing, in the form of a note
payable  to  the  seller,  and an aggregate of $1.5 million paid over two years,
pursuant  to  a  non-competition  agreement  with the former owner of Advantage.
Advantage  had  approximately  $7  million  of annual revenue at the time of the
acquisition. The acquisition of Advantage was recorded using the purchase method
of  accounting,  and  its  results  of  operations are included in the Company's
financial  statements  beginning  on  the  date  of  acquisition.


                                      -4-
<PAGE>
In  1997, the Company also completed the acquisition of Consumers Life Insurance
Company  of  North  Carolina  ("Consumers"),  a  privately-held dental insurance
company  with  licenses  in  sixteen  states,  for  total  consideration  of
approximately $3.2 million. Consumers had no significant business at the time of
the  acquisition, but it was licensed in several states in which the Company was
not previously licensed to offer PPO/indemnity dental plans. The acquisition was
recorded  based  on  the  purchase  method  of  accounting, and accordingly, the
results  of  operations  of  Consumers  are  included in the Company's financial
statements  beginning  on  the  date  of  the  acquisition.

GEOGRAPHIC  MARKETS

The  Company  operates  primarily  in  California,  Texas  and  Florida  and its
marketing  activities  are  currently focused on these states. It also maintains
both managed care and PPO provider networks in several other states, and obtains
new  business  in  those  other  states  from time to time. The Company uses its
provider networks in other states to serve employees of customers in its primary
markets  who  are  located  outside  of  California,  Texas  and  Florida.

The  Company  started  its  business  in  California,  and expanded to Texas and
Florida  primarily  through  the acquisition of two managed care dental benefits
companies  located  in  those  two  states.  The  Company  has also expanded its
operations  to  certain  other  states  in  the  past by obtaining a significant
customer contract in a new market, or by expanding an existing customer contract
to  include  additional  geographic areas. It is possible that the Company could
expand  its  operations to additional markets as a result of future acquisitions
or new or expanded customer contracts, although the Company has no current plans
to  do  so.

PRODUCTS

The  Company operates primarily in a single business segment, which is providing
dental benefit plans to employers, individuals and other purchasers. The Company
provides  a broad range of dental benefit plan designs, depending on the demands
of  its  customers. In addition to offering a range of benefit plan designs, the
Company  offers benefit plans with a restricted choice of providers, through its
managed  care plans, and benefit plans with an unrestricted choice of providers,
through  its  PPO/indemnity  plans.  Premium  rates  for  each  benefit plan are
adjusted  to  reflect  the  benefit  design, the cost of dental services in each
geographic  area, and whether the covered individuals can select any provider at
the  time  of  service.  In  addition  to dental benefit plans, the Company also
offers  other  related  products,  as  described  below.  The  revenue currently
generated  by  these  other  related products is not significant compared to the
revenue  generated  by  the  Company's  dental  benefit  plans.

Managed  Care  Dental Plans. The Company offers a comprehensive range of managed
care  dental  plans, under the names SafeGuard Health Plans and SafeGuard Dental
Plans.  The  Company's  managed  care  dental plans typically cover basic dental
procedures,  such  as  examinations,  x-rays,  cleanings  and  fillings,  for no
additional  charge at the time of service, although some benefit designs require
the  member to pay a small co-payment for each office visit. Managed care dental
plans  also  typically  cover  more extensive procedures provided by the general
dentist,  such  as  root  canals  and crowns, as well as procedures performed by
specialists  in  the  Company's  provider  network,  including  oral  surgery,
endodontics, periodontics, orthodontics, and pedodontics, in exchange for member
co-payments  that  vary  depending  on  each  member's  benefit plan design. Any
procedure  performed  by  a specialist must be requested by the member's general
dentist and approved in advance by the Company, in order for the procedure to be
a covered benefit.  The Company's managed care dental plans also cover emergency
out-of-area  treatments  that  are required when a member is temporarily outside
the  geographic  area  served  by  his  general  dentist.

Under  a  managed  care  dental  plan,  each  subscriber and dependent selects a
general  dentist  from the Company's managed care provider network, and receives
all  general  dental services from that dentist. The general dentist selected by
each  member  receives  a  monthly capitation payment from the Company, which is
designed  to  cover  most  of  the  total  cost  of  the general dental services
delivered  to that member. The monthly capitation payment does not vary with the
nature  or  the  extent of dental services provided to the member by the general
dentist,  but is variable based on the particular benefit plan purchased by each
member.  In  exchange  for  the monthly capitation payments, the general dentist
provides dental services to members of the Company's benefit plans, based on the
benefit  design  of  each  member's  benefit plan. In addition to the capitation
payments,  the  general  dentist  also receives co-payments from the members for
certain  types  of services, and receives supplemental payments from the Company
for certain types of services. The Company typically pays for services delivered
by  a  specialist  based  on  a  negotiated  fee  schedule.


                                      -5-
<PAGE>
PPO/Indemnity  Dental  Plans.  The  Company  offers  a  comprehensive  range  of
PPO/indemnity  dental  plans,  subject  to  regulatory  restrictions  in certain
states. PPO/indemnity dental plans typically cover the same dental procedures as
managed  care  dental plans. Under the Company's PPO/indemnity dental plans, the
covered  individuals  are required to make a co-insurance payment at the time of
each  service,  which  is typically higher than the co-payments required under a
typical  managed  care  dental plan. In addition, the benefits covered under the
Company's  PPO/indemnity  dental  plans  are  subject  to annual deductibles and
annual  benefit maximums, which is not the case under the Company's managed care
dental  plans.

Under  PPO/indemnity  dental  plans,  subscribers  and  dependents can choose to
receive  covered services from any licensed dentist of their choice. In the case
of  a  benefit  plan  that  includes  a  PPO component, the co-insurance amounts
required  to  be  paid by subscribers and dependents are reduced if the services
are  delivered  by  a  dentist  in  the Company's preferred provider network. In
addition,  the  covered  individual's annual deductible may be waived as long as
all  services  are  delivered  by  a dentist in the Company's preferred provider
network.  The  Company  pays for services delivered by dentists in its preferred
provider  network  based  on  negotiated  fee  schedules,  and pays for services
delivered  by  other  providers based on usual and customary dental fees in each
geographic  area.  The  Company  believes that offering an indemnity dental plan
with  a  PPO  network  is  an attractive way to enter geographic areas where few
dentists  have  agreed  to  participate in managed care networks. In such areas,
participation  in the PPO network can serve as a transitional step for dentists,
between  the  traditional  system  of reimbursement based on usual and customary
fees,  to  participation  in  a managed care network. PPO/indemnity dental plans
subject  the  Company  to  more significant underwriting risks than managed care
dental  plans,  because  the  Company  assumes  all  the risk related to varying
utilization  rates  under  its  PPO/indemnity  dental  plans.

The  Company  believes  that  PPO/indemnity  benefit  plans  are  attractive  to
employers  and other purchasers because they are a cost-effective alternative to
traditional  indemnity  insurance,  and  they  offer  more  freedom of choice of
providers  than  managed  care  dental  plans.

Dual  Option  Product.  The  Company frequently combines one of its managed care
dental  plans  with  one  of  its  PPO/indemnity plans to create a "dual option"
product  for  its  customers. As a result, each subscriber can choose whether to
enroll  in the managed care dental plan or the PPO/indemnity plan. By offering a
dual  option  product, the Company can offer its customers more flexibility, and
can  capture  a larger portion of the total dental benefits expenditures by each
of  its  customers. This product also allows the Company to offer a managed care
dental  plan  to  cost-conscious  customers,  while also providing PPO/indemnity
coverage  to employees of those customers who are located outside the geographic
area  served  by  the  Company's  managed care provider network. Certain states,
including Nevada and Oklahoma, require that managed care dental plans be offered
only  as part of a dual option product and other states may do so in the future.

Vision  Benefit  Plans.  The  Company  offers  a vision benefit plan to employer
groups,  which  covers routine eye care in exchange for a fixed monthly premium.
Under  the  vision  plan,  subscribers  can  choose to receive services from any
licensed  optometrist of their choice. Alternatively, they can choose to receive
services  from  an  optometrist in the preferred provider network, in which case
their  co-insurance payments at the time of service would be reduced. Currently,
the  annual  revenue  from  vision  benefit  plans  is  not  material.

Other  Dental  Benefits Products. For self-insured employers, the Company offers
claims administration under an administrative services only ("ASO") arrangement,
under  which  the Company does not assume the underwriting risk for the benefits
provided.  The  Company receives an administrative fee to process claims and the
underwriting  risk is retained by the employer sponsoring the self-insured plan.
The  Company  also  provides  access  to its PPO network for a fixed monthly fee
based  on  the  number  of potential patients covered by the product. Under this
product,  the  providers  in  the  PPO  network offer a reduced fee schedule for
services  provided  to  participating patients. The Company makes no payments to
the  providers  in  the  PPO  network  under this product. Currently, the annual
revenue  from  ASO arrangements and PPO network access products is not material.

MARKETING

The  Company  markets  its  products  to  employer groups, individuals and other
purchasers  primarily  through  independent brokers and consultants. Independent
brokers  are typically engaged by employer groups and other purchasers to select
the dental plan that best suits the needs of the purchaser's employees, in terms
of price, benefit design, geographic coverage of the provider network, financial
stability,  reputation  for  customer  service,  and  other factors. Brokers are
typically  paid  by  the Company, based on a specified percentage of the premium
revenue  collected from each group contract generated by the broker. The largest
employers  typically  engage  consultants, instead of brokers, to assist them in
selecting the dental plan that best suits their needs. The consultants generally
perform  the  same  function  as brokers, but are typically paid by the employer
instead  of  the  Company.  Consequently,  large employers expect to pay premium
rates  that have been reduced to reflect the fact that the Company is not paying
a broker commission. Brokers and consultants do not market the Company's benefit
plans  on  an  exclusive  basis.


                                      -6-
<PAGE>
The  Company  has  an internal sales force that is paid through a combination of
salary  and  incentive compensation based on the volume of business generated by
each  salesperson.  The  function  of  the  internal sales force is primarily to
cultivate  relationships  with  brokers and consultants, and to help brokers and
consultants  present  the  Company's  benefit plans to their clients in the most
favorable  way,  although  a  small portion of the Company's sales are generated
directly  by  its  internal  sales  force.  The  Company  uses the same brokers,
consultants  and  internal  sales  force  to  market  all  of  its  products.

After an employer group or other purchaser decides to make the Company's benefit
plan  available  to  its employees, the Company's marketing efforts shift to the
individual  potential subscribers. Typically, employees participate in an annual
open enrollment process, under which they select the employee benefit plans they
wish to use for the upcoming year. During the open enrollment process, employees
typically  choose between benefit plans offered by the Company and benefit plans
offered  by  competitors  of the company, and in some cases, whether to purchase
any  benefit  plans at all. In the case of some employers, the Company's benefit
plans  are  offered  to  employees  on  an exclusive basis. In the case of other
employers,  the  Company's benefit plans are offered in competition with benefit
plans  offered  by the Company's competitors. Generally, employees can enroll in
the  Company's  benefit  plans  or  cancel  their participation in the Company's
benefit  plans  only  during  this  annual  open  enrollment  process.

In  addition  to  an  internal  sales  force,  the  Company also employs account
managers  who  are  responsible  for  meeting  the  needs of existing customers,
promoting  retention  of  the  individual  subscribers  who  are enrolled in the
Company's  benefit  plans,  and  marketing  additional  products  to  existing
customers.  These account managers are responsible for supporting the customer's
open  enrollment process to ensure that difficulties experienced by the customer
during this process are minimized, and that the number of subscribers who enroll
in  the  Company's benefit plans is maximized. The account managers perform this
function  for  both  new  employer  groups and renewing employer groups. Account
managers  are  paid  through  a combination of salary and incentive compensation
based  on their success in retaining existing subscribers and selling additional
products  to  existing  customers.

UNDERWRITING

When  the Company has the opportunity to submit a proposal for a benefit plan to
a  potential  customer,  it first obtains certain basic underwriting information
from  the  prospective  client.  This information includes whether the potential
customer  currently  has  dental  coverage,  the  benefit design of the existing
dental  coverage, the geographic location of the potential customer's employees,
the number of employees and dependents who are currently enrolled and the number
who  are  eligible for coverage, the portion of the cost of dental coverage that
is  paid  by  the employer, whether the potential customer is considering making
the  Company  the  exclusive  provider  of  dental  coverage,  and other similar
information.  The  Company  then  evaluates  all of this information in order to
assess  the underwriting risk associated with providing a dental benefit plan to
the  potential  customer.  Based  on this evaluation, the Company either makes a
proposal that includes a benefit design and premium rates that take into account
the  Company's  risk  assessment,  or  declines  to  make  a  proposal due to an
excessive  amount  of  underwriting  risk.

CLIENTS  AND  CUSTOMER  CONTRACTS

The Company currently provides services to an aggregate of approximately 750,000
individuals,  who  participate  in the Company's benefit plans primarily through
group  contracts  with  over  4,000  employers  and  other  purchasers of dental
benefits. The Company's customers include many large employers, including Boeing
Corporation,  City  of  Dallas, County of Los Angeles, Dallas Independent School
District,  Joint  Council  of  Teamsters  #42 Welfare Trust, Southern California
Edison,  Southern California Gas Company, and State of California, among others.
A  small  portion of the total covered individuals participates in the Company's
benefit  plans  through  individual managed care dental plans purchased from the
Company.  No  single  customer  accounts  for  ten  percent (10%) or more of the
Company's  total  premium  revenue.


                                      -7-
<PAGE>
The  Company's group contracts generally provide for a specified benefit program
to be delivered to plan participants for a period of one to two years at a fixed
monthly  premium  rate for each subscriber type. The contracts typically provide
for  termination  by  the  customer  upon 60 days written notice to the Company.

PROVIDER  NETWORKS

The  Company  currently has approximately 3,500 general dentists and specialists
in  its  managed  care network, and has approximately 7,700 general dentists and
specialists  in  its  PPO  network.  The  Company believes that a key element of
success in the dental benefits business is an extensive network of participating
dentists  in  convenient  locations.  The  Company  believes  that  dentists who
participate  in  its  managed care and PPO networks are willing to provide their
services  at  reduced  fees  in  exchange  for  a  steady stream of revenue from
patients  enrolled  in  the  Company's  benefit plans. In addition, this revenue
source  for  the  dentist  is  relatively  free  from  collection  problems  and
administrative  costs  sometimes  associated  with  other  types  of  patients.
Therefore, qualified dentists and/or dental groups have generally been available
and  willing  to  participate  in the Company's managed care and PPO networks in
order  to  supplement  their  conventional  patient base for which they are paid
based  on  usual  and  customary  fees.

The  Company requires that all dentists in its managed care network meet certain
quality  assessment  program  standards.  Those  standards  include  current
professional  license  verification,  current  liability  insurance,  a  risk
management  review  of  the  dental  office  facility  to  ensure  that OSHA and
regulatory  requirements  are  met,  an inspection of the office's sterilization
practices,  and  a  review  of  the  dental  office  location, including parking
availability  and  handicap  access.

The  Company  compensates  each  general  dentist  in  its  managed care network
primarily  through  monthly capitation payments. Each general dentist receives a
fixed monthly payment for each subscriber and dependent who selects that dentist
as  his  primary  dentist.  The amount of the capitation payment related to each
member  varies  based  on  the plan design in which each member is enrolled, but
does  not  vary with the nature or extent of the dental services provided to the
member.  In  addition  to capitation payments, the general dentists also receive
supplemental  payments  from  the Company and co-payments from the patients. The
Company  makes a fixed supplemental payment to the general dentist each time the
dentist  delivers specified procedures to members who have selected that dentist
as  their  general  dentist.  The  amount  of  the  supplemental  payment varies
depending  on  the  specific  procedure  performed. Each supplemental payment is
designed  to  mitigate  the  risk to the dentist associated with procedures that
require  the payment of a laboratory fee by the dentist, and members who require
an  extensive amount of dental services, but is low enough to avoid providing an
incentive for the dentist to increase the utilization of services by his managed
care  patients.  The  Company believes the use of supplemental payments provides
for  a  higher  level  of  member  and  provider satisfaction with the Company's
managed  care  program.  The  general dentist also receives co-payments from the
members  for  certain  types  of services, which vary based on the specific plan
design  purchased  by each member. No individual dental office provides services
to  ten  percent  (10%) or more of the members enrolled in the Company's managed
care  plans.

The  Company's  managed  care  network also includes specialists in the areas of
endodontics, oral surgery, orthodontics, pedodontics, and periodontics. In order
for  a  member  to  receive  services  from a specialist, those services must be
requested  by  the  member's  general  dentist  and  approved  in advance by the
Company.  Specialists  are  reimbursed  by the Company based on a negotiated fee
schedule,  and  also  receive co-payments from members based on the benefit plan
design  purchased  on  behalf  of  each  member.

Dentists  in the Company's PPO network are compensated based on a negotiated fee
schedule  that  is  generally 20 to 40 percent less than the usual and customary
fees  for  that  provider's geographic area. Non-contracted dentists who provide
services  to  subscribers  and  dependents  enrolled  in PPO/indemnity plans are
compensated  based  on  usual  and  customary  fees  in  each  geographic  area.

The  Company employs provider relations representatives who are located in local
offices  in  the geographic markets served by the Company. These representatives
are  responsible for maintaining the Company's extensive network of managed care
and  PPO  dentists.  They negotiate contracts with the network dentists and also
assist  the  network  providers  in  the administration of the Company's benefit
plans.  In the event that a network dentist terminates his relationship with the
Company, the provider relations representative is responsible for recruiting new
providers  to  meet  the needs of the patients enrolled in the Company's benefit
plans.


                                      -8-
<PAGE>
The dentists in the Company's managed care and PPO networks are free to contract
with  other  dental  benefit  plans,  and  both the provider and the Company can
typically  terminate the contract at any time upon 60 days prior written notice.
In  accordance  with  the  contract, the Company may also terminate the contract
"for  cause"  upon 15 days prior written notice. The Company can also change the
reimbursement  rates,  member  co-payments,  and  other  financial  terms  and
conditions  of  the  contract  at  any  time,  with  ten (10) days notice to the
provider.  The  Company's  contracts  with  dentists in its managed care and PPO
networks  require  them  to  maintain  professional  liability  insurance with a
minimum  coverage of $200,000 per claim, and $600,000 aggregate per year, and to
indemnify  the  Company for claims arising from the dentist's acts or omissions.

QUALITY  MANAGEMENT

The  Company  maintains a quality management program with respect to its managed
care  business,  which  is  under the direction of its Vice President and Dental
Director.  The  Company's  quality  management  program includes verification of
provider  credentials,  assessment  of each dentist's compliance with applicable
state  regulatory  standards  and practice standards established by the Company,
monitoring of patient appointment availability and accessibility of dental care,
monitoring  of  patient  satisfaction  through  member  surveys and other tools,
analysis  of  dental  care  utilization  data,  ensuring  compliance  with state
regulatory  requirements,  addressing  member  complaints  and  grievances,  and
assessment  of  other qualifications of dentists to participate in the Company's
managed  care  network.

The Company maintains a credentialing committee, which uses information provided
by  an  NCQA-certified Credentialing Verification Organization ("CVO") to verify
each  provider's  licensing  status,  insurance  coverage,  and  compliance with
applicable  federal  and  state  regulations,  and  to  review  the  National
Practitioners  Data  Bank for complaints filed against the provider. The Company
also  uses  an  outside  contracting  service  to  perform on-site dental office
quality  assessment  reviews  to determine appropriateness of care and treatment
outcomes.

The  Company  uses  an  outside  contracting  service  to conduct monthly member
satisfaction  surveys.  These  surveys  monitor the level of member satisfaction
with  respect to the dental services provided by network dentists, the choice of
providers  within  the  Company's network, the benefits covered by the Company's
benefit  plans,  and  the  customer service provided by the Company. The Company
also  uses  member  surveys  to  monitor appointment availability at contracting
dentist  offices,  including  availability  of  new patient, recall, routine and
emergency  appointments,  and  to measure the waiting time in the reception area
and  treatment room. The results are used by the Company to determine how it can
improve  the  level  of  service  provided  to  its  members.

UTILIZATION  REVIEW

The  Company  monitors  the  utilization  rates  for  various  dental procedures
provided  by  general  dentists  in  its  managed  care  network, as well as the
frequency  of  specialist  referrals  initiated by those dentists, based on paid
claim information. The analysis of this information, including comparisons among
providers  in  the  network, enables the Company to determine whether any of its
providers  display  practice  patterns  that are not cost-effective, or practice
patterns  that  are  otherwise  inappropriate.  When  this  information  shows a
potentially  inappropriate practice pattern, the Company conducts a more focused
review  of  the  dental  practice  in  question.

The  Company  also  monitors the utilization rates for various dental procedures
provided  by  dentists  in its PPO network, based on paid claim information. The
analysis  of  this  information,  including  comparisons  among providers in the
network,  enables  the  Company  to  focus  its  provider contracting efforts to
develop  a  more cost-effective PPO network, as well as to improve the design of
its  PPO/indemnity  benefit  plans.  This information also allows the Company to
demonstrate  savings achieved by the Company and its subscribers and dependents,
as  a  result  of  the  contracting  arrangements  between  the  Company and the
providers  in  its  network.

MEMBER  SERVICES

The  Company  provides basic member services from its National Service Center in
Aliso  Viejo,  California  through  the  use of toll-free telephone numbers. The
toll-free  telephone  numbers  provide members and dental offices with access to
automated  services  24  hours  per  day,  and  with  access  to member services
representatives  during  regular  business hours. Automated service is available
for  inquiries  such  as  selection  of  a  network  dentist,  requests  for


                                      -9-
<PAGE>
identification  cards,  and  eligibility  verification.  The  Company  uses  an
automated  call  distribution  ("ACD")  system  for  its  management of customer
service  calls.  The ACD system prioritizes customer service calls, and provides
statistics  on  the  number of calls received, the average time to answer calls,
the  number  of  callers  who  terminated  the  call  before  a  member services
representative answered the call, and other similar statistics. These statistics
are  used  by  the Company to determine its staffing needs in the area of member
services, and to identify ways to improve the level of its customer service. The
Company receives approximately 75,000 calls per month, of which approximately 25
percent  access  the  Company's  automated  service  features.

The  Company maintains a Quality Management ("QM") Committee under the direction
of  its  Vice President and Dental Director. The QM Committee is responsible for
the  disposition of all types of member grievances with respect to the Company's
managed  care dental plans. Member grievances are typically originated through a
member  services  call  or  a  letter  written to the Company by the member. The
Company  has  a  standard grievance resolution process that begins with a member
services representative who attempts to resolve the grievance. In the event this
is  not  successful,  or the grievance is related to dental care issues that are
beyond  the  expertise  of  a  member  services representative, the grievance is
addressed  by  the  Company's  Quality  Management  department. The QM Committee
addresses  grievances  that  cannot  be  resolved  by  the  Quality  Management
department.  The  Company  responds  to  all  member  grievances  with a written
disposition  of  the grievance within 30 days of receipt of the grievance. After
the  QM  Committee  has responded to the grievance, the member has the option of
submitting the grievance to binding arbitration, which is conducted according to
the  rules  and  regulations  of  the  American  Arbitration  Association.

The  QM  Committee  monitors the frequency of member grievances by type, and the
average  time in which the Company responds to grievances, in order to determine
ways  it  can improve its communications with members and network providers, and
otherwise improve its customer service. Statistics on member grievances are also
used  to  determine  ways  to improve the efficiency of the grievance resolution
process.

MANAGEMENT  INFORMATION  SYSTEMS

The Company currently uses two primary business applications for its eligibility
files,  billing  and  collections,  claims  processing,  and  provider  network
activities,  one  for  its  managed  care  dental  business  and  one  for  its
PPO/indemnity  dental  business.  The  Company  is  currently  in the process of
combining these two systems into a single application that is expected to reduce
administrative  expenses  and  enhance  customer  service.  Both  of the primary
business  applications  include  comprehensive  information  on  the  Company's
eligibility  files,  benefit  plan  designs, billing and collections activities,
claims  processing activities, and provider payment parameters. Both systems are
also  flexible  enough  to accommodate a wide variety of benefit plan designs to
meet  the  needs  of  the  Company's customers. The system used in the Company's
managed care business is a proprietary application that is continuously modified
by  the  Company to meet the changing needs of this business. The system used in
the PPO/indemnity business is a standard application purchased from a well-known
vendor, which generally meets the needs of the Company's PPO/indemnity business.

The  Company is currently in the process of implementing an enhanced billing and
collections system that would be used for both its managed care business and its
PPO/indemnity  business. This project includes the purchase of a new billing and
collections  application,  new hardware, the integration of this system with the
Company's  two  primary  business  applications,  and  the training of employees
involved in billing and collections activities in the use of the features of the
new  application. This project is designed to provide greater assurance that the
Company  is  collecting  appropriate  amounts from its customers, to improve the
efficiency  of  the  billing  and  collections  process, and to improve customer
service  related  to  billing  and  collections  issues.

The  Company  uses  a personal computer network-based general ledger system that
includes  reporting and analysis tools that allow the extraction and download of
data  to  spreadsheet  programs  for  further  analysis.  The Company also makes
extensive use of its email system in coordinating the activities of employees in
various  office  locations  and  communicating  with  customers,  brokers  and
providers.  The  Company  is  currently in the process of selecting software and
hardware  for a Customer Relationship Management system, which it intends to use
to  manage  customer and provider relationships. The Company also uses a variety
of other, less significant applications in various areas of its business. All of
the  Company's  applications  are  integrated  into  a  single  network, so that
employees can easily access any needed application from their desktop computers.
During  2000,  the  Company purchased a new computer to run its primary business
applications,  which  has  significantly  faster  processors and a significantly
larger amount of storage capacity than the computer previously used. The Company
believes  this computer will serve the Company's needs for at least the next two
to  three  years.


                                      -10-
<PAGE>
RISK  MANAGEMENT

The  Company  is  generally indemnified against professional liability claims by
the  dentists  in  its  managed care and PPO networks. Pursuant to the contracts
between  the  Company and the dentists in its networks, each dentist is required
to  maintain  professional liability insurance with specified minimum amounts of
coverage.  The  Company  also  maintains $10 million of general and professional
liability  insurance  coverage,  which covers losses on a claims made basis. The
Company  believes  this  amount  of  coverage is adequate to manage the ordinary
exposure of operating its business. However, there can be no assurance that this
amount  of  coverage  would  be  adequate  to cover potential claims against the
Company,  or that adequate general and professional liability insurance coverage
will  be  available  to  the  Company  at  a  reasonable  cost.

COMPETITION

The  Company  operates  in  a  highly competitive environment and faces numerous
competitors  in  each  of its geographic markets, and with respect to all of the
products  offered  by  the  Company.  The  Company's  competitors  include large
insurance  companies  that  offer  managed  care  dental  benefit  plans  and
PPO/indemnity  dental  benefit  plans,  medical  HMOs  that offer dental benefit
plans,  self-insured  dental  plans provided by employers, and numerous local or
regional  companies  that  offer  various  types  of  dental benefit plans. Many
competitors  are  significantly  larger than the Company, and have substantially
greater  financial  resources  than  the  Company.

The  Company  believes  that  the  key  factors  in an employer's selection of a
particular  dental  benefit  plan  include  the  premium  rates  charged,  the
comprehensiveness  of  the dental benefits offered, the range of benefit designs
offered,  the  responsiveness  related  to  customer service activities, and the
perceived  quality,  accessibility  and convenience of the dental offices in the
provider  network.  There are competitors that compete aggressively with respect
to  all  of these factors in each of the geographic markets in which the Company
operates, and many employers, particularly large employers, make their selection
of  a  dental  benefit  plan  through  a  competitive  bidding process. There is
significant price competition in each of the Company's geographic markets, which
could  impair  the  Company's  ability  to  sell  its  dental  benefit  plans at
profitable  premium  rates.  The Company anticipates that this price competition
will  continue  to  exist  during  the  foreseeable  future.

Large national insurance companies that offer both managed care dental plans and
PPO/indemnity  dental  plans  may  have  a  competitive  advantage  over smaller
competitors, such as the Company, due to larger provider networks located across
the  United States, the availability of multiple product lines other than dental
benefits,  established  business relationships with large employers, better name
recognition, and greater financial and information system resources. The Company
believes it can effectively compete with these insurance companies by offering a
comprehensive  array of benefit plan designs, and by maintaining a high level of
customer  service with respect to its employer group customers, its members, and
its  dental service providers. Some medical HMOs have developed managed care and
PPO/indemnity  dental  benefit  plans  in-house, and others contract with dental
benefits  companies  to  provide  those  products.  The  Company believes it can
compete  effectively  with medical HMOs that offer dental benefit plans, and the
Company  may pursue opportunities to form relationships with medical HMOs, under
which  the  medical  HMOs  offer  the  Company's  dental  benefit  plans  to its
customers.

Other than the minimum net worth requirements imposed by state regulators, there
are  no  substantial capital requirements related to entering the dental benefit
plan business. Other than the need to obtain a license from the applicable state
regulator, which could take a substantial period of time to obtain, there are no
other  significant  barriers  to  entry  into  the  dental  benefits business by
potential  competitors.  There can be no assurance that the Company will be able
to  compete  successfully with any new competitors. Additional competition could
adversely  impact  the  Company's  profitability  and  growth  prospects through
decreases  in  premium  rates,  and  the  loss  of  customers  or dental service
providers.


                                      -11-
<PAGE>
GOVERNMENT  REGULATION

The  Company's operations are subject to an extensive amount of state regulation
in  each  of  the  states  in  which it operates. The Company's most significant
managed care dental plan subsidiaries are regulated by the California Department
of  Managed  Health  Care,  the  Texas  Department  of Insurance and the Florida
Department  of Insurance. In addition, several other subsidiaries of the Company
are  managed  care  dental plans that are each licensed in the state in which it
operates.  The  Company's  dental insurance subsidiary is primarily regulated by
the  California  Department  of  Insurance, but is also subject to regulation by
state  insurance  regulatory  agencies  in  all  of  the  states  in which it is
licensed.

The  Company's  managed  care  dental plans are subject to regulations that vary
from  state  to  state.  However,  the  Company's  managed care dental plans are
typically  subject  to  state  regulation  with respect to the scope of benefits
provided  to  members  enrolled  in the plans, the content of all contracts with
customers,  dental  service  providers  and  others,  the  amount  of  financial
resources maintained by the Company, the Company's procedures related to quality
assurance,  the  Company's  enrollment  procedures,  the  maximum  percentage of
premium  revenue  that  the  Company  can  spend  on  general and administrative
expenses,  certain  "any  willing  provider"  requirements  which  may limit the
Company's ability to restrict the size of its provider network, the relationship
between  the  Company  and  the  dentists in its provider network, the Company's
procedures for resolving member grievances, and the premium rates charged by the
Company.

The  Company's  PPO/indemnity dental plans are subject to state regulations with
respect  to  the  maintenance  of  a  minimum  amount of tangible net worth, the
maintenance  of restricted deposits for the benefit of certain state regulators,
the  nature  of  investments  held by the Company, advertising, insurance policy
forms,  and  claims  processing  procedures.  Insurance companies in general are
subject to extensive regulation and are typically required to have significantly
greater  financial  resources  than  managed  care  dental  companies.

The  Company's  ability  to expand its operations into states in which it is not
currently  licensed  is  dependent on the regulatory review process conducted by
the  applicable  state  regulatory  agency  in each state. Such reviews may take
anywhere  from  six  to twenty-four months, and must be satisfactorily completed
before  the  Company  can  commence  operations  in  the  applicable  state.

Since  some  states  will  only  license  full service health plans, the Company
cannot  offer  its managed care dental plans in those states, except pursuant to
an  arrangement  with  a  full  service  medical  HMO.  Other states permit only
nonprofit  organizations  to become licensed as managed care dental plans, again
limiting the Company's access to business in those states. The heavily regulated
nature of the Company's business imposes a variety of potential obstacles to any
geographic expansion by the Company, and could limit the Company's future growth
potential.  On  the  other  hand,  this  regulatory environment also governs the
conduct  and  expansion  prospects  of  existing  and  new  competitors, thereby
providing  a  potential  barrier  to  entry  for  potential  competitors.

There is currently no regulation of the Company's business at the federal level.

TRADEMARKS,  SERVICEMARKS  AND  TRADENAMES

The  Company  has filed, received approval, and obtained renewal protection from
the  United  States  Patent  and  Trademark  office  for  certain trademarks and
tradenames  for names and products used by the Company in its ordinary course of
business.  The  Company  has received a trademark, service mark or tradename for
the  following  words  and  phrases  used  with  and  without  distinctive logos
maintained  by  the  Company:

o    SafeGuard(R)  used  with a distinctive logo depicting a modified smile used
     in  connection  with  its  managed  care  dental  plans;

o    SafeGuard  Health  Plans(R)  used  in  descriptive material to describe the
     products  offered  by  the  Company;

o    SafeGuard Dental Plans(TM) used to describe the various managed care dental
     plans  offered  by  the  Company;

o    SafeHealth  Life(R) used with a descriptive logo depicting a modified smile
     used  by  the  Company  to  describe  its  PPO/indemnity  dental plans; and

o    American  Dental  Corporation(R)  adjacent  to a flag of the State of Texas
     used  in  connection  with  its managed care dental plans, the use of which
     ended  in  1999.


                                      -12-
<PAGE>
Collectively,  these trademarks, service marks and tradenames were first used in
commerce  in  1984  and have been continuously used thereafter. In addition, the
Company  has  nearly  completed  and  is about to receive trademark/service mark
protection  from  the United States Assistant Commissioner for Trademarks of its
distinctive  logo  depicting  a smile that the Company is currently utilizing in
interstate  commerce.

EMPLOYEES

At  March  15,  2001, the Company had 206 employees, of which 36 were office and
clerical  employees  represented  by  a  labor  union. The Company considers its
relations  with  its  employees to be satisfactory. The Company provides typical
employee  benefits,  including a portion of the cost of health insurance, dental
insurance,  vision  benefits,  life  insurance,  and  the  opportunity  to  take
advantage  of a 401(k) plan and a flexible spending account under Section 125 of
the  Internal  Revenue Code. Employees are eligible to participate in the 401(k)
plan upon completion of six months of service with the Company. Under the 401(k)
plan,  an  employee  is  allowed  to  contribute  up  to 20 percent of his total
compensation  to  the plan each pay period. The Company may, at its option, make
an  employer  contribution  to  the  plan,  which  would  be allocated among the
employees  in  the plan in proportion to the contribution made by each employee.
The  Company  made  no  contributions  to the 401(k) plan during the three years
ended  December  31,  2000. Employees are fully vested in their contributions to
the  401(k)  plan  at  all  times.

RISK  FACTORS

The  Company's  business  and  competitive environment includes numerous factors
that  expose  the Company to risk and uncertainty. Some risks are related to the
dental  benefits  industry in general and other risks are related to the Company
specifically.  Due  to  the  risks and uncertainties described below, as well as
other risks described elsewhere in this Annual Report on Form 10-K, there can be
no  assurance  that  the  Company  will  be  able to maintain its current market
position  or to return its operations to profitability. Some of the risk factors
described  below  have adversely affected the Company's operating results in the
past,  and  all of these risk factors could affect its future operating results.

Recent Operating Losses. The Company incurred significant net losses during each
of the three years ended December 31, 2000. The Company's ability to continue as
a  going  concern  on  a  long-term basis depends on returning its operations to
profitability. The Company has taken several actions since the beginning of 2000
to  improve  its profitability, including increases in premium rates, reductions
in  certain types of provider payments, a decrease in the amount of office space
used,  consolidation  of  its  administrative  operations in one location, which
facilitated  a decrease in the number of its employees, and decreases in various
other  selling,  general  and  administrative  expenses.  The  results  of  the
Company's  operations  improved  during  the  course  of  2000,  as shown in its
quarterly  results  of  operations,  which  are  included  in  Note  13  to  the
accompanying  consolidated  financial  statements.  The Company plans to further
improve  its  profitability in the future through various actions, including the
improvement  of  various customer service functions, further streamlining of its
operations,  increasing  customer  retention,  and  increasing its volume of new
business  and  new products. However, there can be no assurance that the Company
will  be  successful  in  returning  to  profitability.

Shareholder  Litigation.  In  December  1999,  a stockholder lawsuit against the
Company  was  filed,  which alleged that the Company and certain of its officers
violated  certain  securities  laws  by  issuing  a  series of alleged false and
misleading  statements  concerning  the Company's publicly reported revenues and
earnings  during  a  specified  class  period.  On September 12, 2000, after the
plaintiffs had filed a first amended complaint, the Federal District Trial Court
dismissed  the lawsuit with prejudice, stating that the plaintiffs had failed to
state  a  claim against the Company. On October 6, 2000, the plaintiffs filed an
appeal  of  the  dismissal of the lawsuit, and that appeal is currently pending.
The  Company  has  directors  and  officers  liability  insurance and intends to
vigorously  contest  the  appeal.  However,  there  can be no assurance that the
ultimate  outcome  of  this  litigation  will  not have an adverse impact on the
Company's  financial  position.

Government  Regulation. The dental benefit plan industry is subject to extensive
federal,  state  and  local  laws,  rules and regulations. Each of the Company's
operating  subsidiaries is subject to various requirements imposed by state laws
and  regulations  related  to  the  operation of a managed care dental plan or a
dental  insurance  company,  including  the  maintenance  of a minimum amount of
tangible  net worth by certain subsidiaries. In addition, regulations applicable
to  dental  benefit  plans  could  be  changed  in  the  future. There can be no
assurance  that  the  Company  will  be  able  to meet all applicable regulatory
requirements  in  the  future.


                                      -13-
<PAGE>
Sale  Proceeds  in Escrow Account. In connection with the sale of certain assets
related to general dental practices and orthodontic practices in October 2000, a
portion  of  the  proceeds  were  placed  in an escrow account by the purchaser,
pending the satisfaction of certain conditions by the Company. See Note 2 to the
accompanying  consolidated  financial statements for more information about this
transaction. The failure to satisfy the relevant conditions and collect the sale
proceeds  from  the escrow account could have an adverse impact on the Company's
financial  position.

Liabilities Related to Dental and Orthodontic Practices. The Company has various
liabilities  in  connection  with  the  dental and orthodontic practices sold in
October 2000, including but not limited to, dental office lease obligations, the
obligation  to complete orthodontic treatments for certain managed care patients
who  previously  paid  for  the  treatments  in  full, the obligation to pay for
completing  certain  dental  treatments,  and possibly, other operating expenses
related  to  the  practices  that  were sold. The amount of these liabilities is
subject  to  uncertainties, due to the inability to predict future developments.
There can be no assurance that the ultimate amount of these liabilities will not
exceed  the  amounts  accrued  on the Company's balance sheet as of December 31,
2000.

Contingent  Lease  Obligations.  The  Company  is  contingently  liable  for  an
aggregate  of  approximately $5.5 million of office lease obligations related to
the dental and orthodontic practices sold by the Company in 1996, 1997 and 1998,
including  those  practices  sold  again  by  the Company in October 2000. These
leases  have  been assigned to the purchasers of those practices, or in the case
of  the  practices  re-sold  in  October  2000, the Company is in the process of
assigning  the  leases  to  the  purchaser.  There  can be no assurance that the
entities  to  which  these  office  leases  were  assigned  will  make the lease
payments,  and  that  the  Company  will  not  be  liable  for  those  payments.

Risk  of  Acquisitions.  The  Company completed two acquisitions of managed care
dental  plan  companies in 1997 and 1996. The Company is still in the process of
integrating  the  operations  of  these  businesses  into its other managed care
dental plan business. There can be no assurance that the Company will be able to
successfully  complete this integration in a cost-effective manner. In addition,
successful  completion  of  this  integration  could  still  require significant
amounts  of  management's  time.  A  failure  to  successfully  complete  this
integration  could  have  a  material  adverse effect on the Company's financial
results.

Payments  Due on Promissory Notes. In connection with the sale of certain dental
practices  by  the  Company  in  1996 and 1997, the dentists who purchased those
practices issued long-term promissory notes to the Company secured by the assets
purchased.  There  can  be  no  assurance  that each of these dentists will make
timely  payments  on  these  promissory  notes  in  the  future.

Possible  Volatility  of  Stock  Price. The market price of the Company's common
stock  has  fluctuated  significantly  during  the  past  few years. Stock price
volatility  can  be  caused  by  actual  or  anticipated variations in operating
results, announcements of new developments, actions of competitors, developments
in  relationships  with  clients,  and  other  events  or factors. Even a modest
shortfall  in  the  Company's operating results, compared to the expectations of
the investment community, can cause a significant decline in the market price of
the  Company's  common  stock.  In addition, the trading volume of the Company's
common stock is relatively low, which can cause fluctuations in the market price
and  a  lack  of  liquidity  for  holders of the common stock. The fact that the
Company's  common  stock  is  no longer listed on the NASDAQ National Market can
have a negative influence on the trading volume of the stock. Broad stock market
fluctuations,  which  may  be  unrelated to the Company's operating performance,
could  also  have  a  negative  effect  on  the  Company's  stock  price.

Competitive  Market.  The Company operates in a highly competitive industry. Its
ability  to  achieve  profitability  is  affected by significant competition for
employer  groups and for contracting dental providers. There can be no assurance
the  Company will be able to compete successfully enough to achieve and maintain
profitability.  Existing  or new competitors could have a negative impact on the
Company's revenues, earnings and growth prospects. The Company expects the level
of  competition  to  remain  high  for  the  foreseeable  future.

Ability  to  Increase  Revenue. The Company has not increased its annual premium
revenue  significantly during the past four years. The Company intends to expand
its  business in the future and to increase its annual revenue, but there can be
no  assurance  the Company will be able to maintain its current level of revenue
or  to  increase  it  in  the  future.  The ability of the Company to expand its
business  depends  on  a  number  of  factors,  including  existing and emerging
competition,  its  ability to maintain effective control over the cost of dental
services,  and  its  ability  to obtain sufficient working capital to support an
increase  in  revenue.


                                      -14-
<PAGE>
Utilization  of  Dental  Care Services. Under the Company's PPO/indemnity dental
plans,  the Company assumes a significant amount of underwriting risk related to
the  rate  at  which  dental  care  services  are  utilized  by  subscribers and
dependents,  and  to  the  cost  of  those  services.  If  the  Company does not
accurately  assess  these  underwriting  risks, the premium rates charged to its
customers  may  not  be  sufficient  to  cover  the  cost of the dental services
delivered  to  subscribers  and  dependents.  This could have a material adverse
effect  on  the  Company's  operating  results.

Under  the  Company's  managed  care  dental  plans,  the  Company  also assumes
underwriting  risk related to the rate at which specialist services are utilized
by subscribers and dependents, and to the cost of those services. If the Company
does  not  accurately assess these underwriting risks, the premium rates charged
to  its customers may not be sufficient to cover the cost of the dental services
delivered  to  subscribers  and  dependents.  This could have a material adverse
effect  on  the  Company's  operating  results.

Effect  of  Adverse  Economic  Conditions.  The  Company's  business  could  be
negatively  affected by periods of general economic slowdown or recession which,
among  other  things,  may be accompanied by layoffs by the Company's customers,
which  could  reduce the number of subscribers enrolled in the Company's benefit
plans,  and  by  an  increase  in  the  pricing  pressure  from  customers  and
competitors.

Relationships  with  Dental  Providers.  The  Company's  success is dependent on
maintaining competitive networks of dentists in each of the Company's geographic
markets.  Generally,  the  Company  and  the  network  dentists  enter  into
non-exclusive  contracts  that  may  be  terminated by either party with limited
notice.  The  Company's  operating results could be negatively affected if it is
unable to establish and maintain contracts with a competitive number of dentists
in  locations that are convenient for the subscribers and dependents enrolled in
the  Company's  benefit  plans.

Dependence  on Key Personnel. The Company believes its success is dependent to a
significant  degree  upon  the abilities and experience of its senior management
team.  The  loss  of  the services of one or more of its senior executives could
negatively  affect  the  Company's  operating  results.

RECENT  DEVELOPMENTS

On  March  1, 2000, the Company entered into a recapitalization transaction with
an  investor  group (the "Investors"), the revolving credit facility lender (the
"Bank"),  and the holder of the senior notes payable (the "Senior Note Holder").
In  this  transaction,  the  Investors loaned $8.0 million to the Company in the
form  of  an  investor  senior  loan,  which  was due April 30, 2001, and had an
interest  rate  of  10%  annually.  The Investors, the Bank, and the Senior Note
Holder  agreed to convert the $8.0 million investor senior loan, the outstanding
balance  of  $7.0  million  under  the  revolving  credit  facility plus accrued
interest, and the $32.5 million of senior notes payable plus accrued interest to
convertible  preferred  stock, subject to regulatory approval and an increase in
the  authorized  shares  of  common  stock.

In  connection  with  the  recapitalization  transaction,  both the Bank and the
Senior  Note  Holder  agreed not to demand or accept any payment of principal or
interest  under  their  respective  credit  agreements,  and  not  to  take  any
enforcement  actions of any kind under those agreements until April 30, 2001. As
of  December  31,  2000,  the  Company was subject to various financial covenant
requirements  under  the  credit  agreements  with  the Bank and the Senior Note
Holder. The Company was not in compliance with those requirements as of December
31,  2000.

Effective as of January 31, 2001, the recapitalization transaction was completed
and  the  Company  converted  the  investor  senior  loan  ($8.0  million),  the
outstanding  balance  under  the  revolving  credit facility ($7.0 million), the
senior  notes payable ($32.5 million), and the accrued interest on the revolving
credit  facility  and  the senior notes payable ($5.0 million as of December 31,
2000) into 300,000 shares of convertible preferred stock. The estimated value of
the  convertible  preferred stock as of January 31, 2001, was $137.50 per share,
which is based on the closing price of the Company's common stock on January 31,
2001,  which  was  $1.375 per share, and the fact that each share of convertible
preferred  stock  is  convertible into 100 shares of common stock. Based on this
estimated  value, the conversion transaction resulted in a pre-tax gain of $11.3
million.  It is expected that there will be no income tax effect related to this
transaction,  due  to  the  Company's  net operating loss carry-forwards for tax
purposes,  as  discussed  in  Note  9  to the accompanying financial statements.


                                      -15-
<PAGE>
The  convertible  preferred  stock  does  not accrue dividends of any kind. Each
share  of  convertible  preferred stock is convertible into 100 shares of common
stock  at the option of the holder. The convertible preferred stock entitles the
holder to one vote for each share of common stock into which the preferred stock
is  convertible, with respect to all matters voted on by the common stockholders
of  the  Company,  except  for  the  election  of  directors. The holders of the
convertible  preferred  stock have the right to elect a total of five members of
the  board  of  directors, and the holders of the common stock have the right to
elect  the  remaining  two  directors.  The  convertible  preferred  stock has a
liquidation  preference  over  the  common  stock  of  the  Company.

As  a  result  of  the  conversion  transaction,  the previously existing common
stockholders  of  the  Company  now  own  approximately  14% of the common stock
interests of the Company. In March 2000, in connection with the recapitalization
transaction,  the  Company agreed to place four new directors, who represent the
Investors,  the  Bank,  and  the  Senior Note Holder, on its board of directors.
Three  of those directors were placed on the board in March 2000, and the fourth
director  was  placed  on  the  board  as  of  January  31, 2001. These four new
directors constitute a majority of the board of directors, which currently has a
total  of  seven  members.

In  connection  with  a  restructuring  of the senior notes payable in 1999, the
Company  issued warrants to acquire 382,000 shares of the Company's common stock
to  the  Senior  Note  Holder.  The  warrants  were exercisable any time between
January  1,  2000,  and  December  31,  2003, at a price of $4.51 per share. The
warrants  were  cancelled  in  connection  with the recapitalization transaction
completed  as  of  January  31,  2001,  as  discussed  above.

In  October  2000,  the  Company  completed  a  transaction  in which the assets
reflected  on  the  Company's  balance  sheet  under  the  caption  "Assets  of
discontinued  operations  transferred under contractual arrangements" were sold.
These assets consisted of the assets of general dental practices and orthodontic
practices  that  were  originally sold by the Company to a single purchaser (the
"Purchaser")  in  1997  and  1998.  These  assets  were sold to the Purchaser in
exchange  for  long-term promissory notes. The Purchaser ultimately defaulted on
its  obligations  to  the  Company  under  those notes, and in October 2000, the
Company  completed  a  transaction  in  which the general dental and orthodontic
practices  sold  to  the Purchaser were re-sold to another third party (the "New
Purchaser").  In this transaction, the Purchaser transferred its interest in the
dental  and  orthodontic  practices to the New Purchaser, the New Purchaser paid
$2.4  million  to the Company and placed an additional $1.5 million in an escrow
account  for  the  benefit of the Company, and the Company agreed to pay certain
obligations related to these practices. These obligations consisted primarily of
payroll, dental office lease obligations, patient refunds, and the obligation to
complete  the  orthodontic  treatments  for managed care patients who previously
paid  for  the  treatments  in  full. These obligations either had to be paid in
order to complete the transaction, or were obligations for which the Company may
be  contingently  liable in any event. The amount of the escrow account that may
be  realized by the Company, and the ultimate cost of the obligations assumed by
the  Company,  are subject to uncertainties. Based on the Company's estimates of
the  outcome  of these uncertainties, the Company estimates that it will realize
no net proceeds from this transaction, after satisfaction of all the obligations
assumed  from  the  Purchaser.  However, the Company believes that by completing
this  transaction,  it  may  avoid being responsible for a significant amount of
contingent  lease  obligations  related  to the dental and orthodontic practices
sold  to  the  New Purchaser, which are described in Note 10 to the accompanying
consolidated  financial  statements. This transaction resulted in a $2.5 million
charge  to  earnings  during  2000  to  reduce  the carrying value of "Assets of
discontinued  operations  transferred  under  contractual arrangements" to their
estimated  realizable  value.  See  Note  5  to  the  accompanying  consolidated
financial statements for a discussion of impairment charges that were recognized
in  2000  in  connection  with  this  transaction.

The  Company  incurred  a significant operating loss during 2000, in addition to
interest  expense  on  outstanding  debt, and the impairment of discontinued net
assets  transferred  under contractual arrangements. However, the results of the
Company's  operations  improved  during  the  course  of  2000,  as shown in its
quarterly  results  of  operations,  which  are  included  in  Note  13  to  the
accompanying  consolidated  financial  statements.


                                      -16-
<PAGE>
ITEM  2.  PROPERTIES
--------------------

The  Company  leases a total of approximately 68,000 square feet of office space
in  a  single  location in Aliso Viejo, California, under a lease agreement that
expires in 2008. Approximately 12,000 square feet of this space is not currently
used  by  the Company, but is subleased to a third party through April 2002. The
remaining 56,000 square feet of office space is used for the Company's corporate
headquarters  and  its  National  Service Center, which includes member services
activities,  eligibility  file  maintenance,  billing  and  collections,  claims
processing  and  other  similar  customer  support  activities. In addition, the
Company  leases  office space in Walnut Creek, California; Tamarac, Florida; St.
Louis,  Missouri;  and  Dallas and Houston, Texas. The Company leased all of the
office  space  used  by  its  previously owned dental and orthodontic practices,
which leases have been assigned, or are in the process of being assigned, to the
entities  who  purchased  the dental practices. The Company remains contingently
liable  for  all of these leases, which expire on various dates through 2007, as
discussed  in  Note 10 to the accompanying consolidated financial statements. In
the opinion of management, the Company's facilities are adequate for its current
needs.

ITEM  3.  LEGAL  PROCEEDINGS
----------------------------

The  Company  is  subject  to  various  claims and legal actions in the ordinary
course  of  business. The Company believes all pending claims either are covered
by liability insurance maintained by the Company or by dentists in the Company's
provider  network,  or  will  not  result  in  a significant adverse outcome. In
December  1999,  a  stockholder  lawsuit  against  the  Company was filed, which
alleged that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  On  September  12, 2000, after the plaintiffs had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company.  On October 6, 2000, the plaintiffs filed an appeal of the dismissal of
the lawsuit, and that appeal is currently pending. The Company has directors and
officers  liability  insurance  and intends to vigorously contest the appeal. In
the  opinion  of management, the ultimate outcome of this matter will not have a
material  adverse  effect  on  the  Company's  financial  position or results of
operations.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS
---------------------------------------------------------------------

The  Company  held  a  Special Stockholders Meeting on October 25, 2000. At this
meeting,  the  stockholders  of the Company elected six directors to serve until
the  next  annual  stockholders  meeting,  approved an increase in the number of
authorized  common  shares from 30 million shares to 40 million shares, approved
an  amendment  to  the Company's Restated Articles of Incorporation to eliminate
the  classification  of the board of directors so that all directors are elected
annually,  and  approved  an  amendment  to the Company's Stock Option Plan (the
"Plan")  to  increase  the  number  of  shares  issuable under the Plan from 1.3
million  to  3.0  million  shares. The reason for the increase in the authorized
common  shares  was  to  support  the  issuance of 300,000 shares of convertible
preferred stock effective as of January 31, 2001, as described in Note 14 to the
accompanying  consolidated  financial  statements.


                                      -17-
<PAGE>
                                     PART II

ITEM  5.  MARKET  FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

(a)  MARKET  INFORMATION

The  Company's  common  stock  is traded on the NASDAQ Over The Counter Bulletin
Board  under  the  symbol  SFGD. The following table sets forth the high and low
sale  prices of the Company's common stock each calendar quarter, as reported by
NASDAQ.  The prices shown are based on transactions between market makers in the
Company's  stock,  and  do  not  necessarily  represent  transactions  between
non-dealer  principals.

<TABLE>
<CAPTION>
                                                                      HIGH       LOW
                                                                   ---------  ---------
<S>                                                                <C>        <C>
Year ended December 31, 2001:
  First Quarter, through March 15, 2001. . . . . . . . . . . . .    $  2.75  $  0.88

  Year ended December 31, 2000:
  First Quarter. . . . . . . . . . . . . . . . . . . . . . . . .    $  3.50  $  0.41
  Second Quarter . . . . . . . . . . . . . . . . . . . . . . . .       1.50     0.50
  Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . .       0.91     0.40
  Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . .       1.00     0.42

  Year ended December 31, 1999
  First Quarter. . . . . . . . . . . . . . . . . . . . . . . . .    $  4.63  $  2.50
  Second Quarter . . . . . . . . . . . . . . . . . . . . . . . .       5.09     2.53
  Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . .       5.25     3.13
  Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . .       4.00     0.38
</TABLE>

(b)  HOLDERS

As  of  March  15,  2001,  there were approximately 500 holders of the Company's
common  stock,  including approximately 410 holders of record, and 21 holders of
the  Company's  convertible  preferred  stock

(c)  DIVIDENDS

No  cash dividends have been paid on the Company's common stock, and the Company
does  not  expect  to  pay  cash  dividends  during  the foreseeable future. The
Company's  convertible  preferred  stock  does not accrue dividends of any kind.

STOCKHOLDER  RIGHTS  PLAN

In  March 1996, the board of directors of the Company declared a dividend of one
right  to  purchase  a  fraction of a share of its Series A Junior Participating
Preferred  Stock,  having  rights,  preferences,  privileges and restrictions as
designated,  and  under  certain  circumstances,  other  securities,  for  each
outstanding share of the Company's common stock. The dividend was distributed to
stockholders  of  record  at  the  close  of  business  on  April  12, 1996. The
description  and  terms of the Rights are set forth in a Rights Agreement, dated
as  of  March  22,  1996,  as  amended,  between  the Company and American Stock
Transfer  and  Trust  Company,  as  Rights  Agent.


                                      -18-
<PAGE>
ITEM  6.  SELECTED  FINANCIAL  DATA
-----------------------------------
The  selected financial data in the following table was derived from the audited
consolidated  financial  statements  of the Company. This data should be read in
conjunction  with  such financial statements and notes thereto, and Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of Operations.

<TABLE>
<CAPTION>
                                                              YEARS  ENDED  DECEMBER  31,
                                                   --------------------------------------------------
STATEMENT OF OPERATIONS DATA (IN THOUSANDS):         2000      1999       1998       1997      1996
                                                   --------  ---------  ---------  --------  --------
<S>                                                <C>       <C>        <C>        <C>       <C>

Premium revenue, net                               $97,251   $ 96,225   $ 97,449   $95,350   $72,709

Health care services expense                        67,589     68,797     66,020    65,702    54,534
Selling, general and administrative expense         32,182     35,803     36,259    25,103    16,292
Loss on impairment of assets (1)                       450     24,576      2,397        --        --
                                                   --------  ---------  ---------  --------  --------
  Operating income (loss)                           (2,970)   (32,951)    (7,227)    4,545     1,883
Investment and other income                          1,431      2,067        624     1,316       984
Interest expense                                    (4,913)    (5,855)    (4,311)   (2,871)     (485)
                                                   --------  ---------  ---------  --------  --------
Income (loss) before income taxes and
  discontinued operations                           (6,452)   (36,739)   (10,914)    2,990     2,382
Income tax expense (benefit) (2)                        --     10,934     (3,406)    1,371       980
                                                   --------  ---------  ---------  --------  --------
Income (loss) before discontinued operations        (6,452)   (47,673)    (7,508)    1,619     1,402
Discontinued operations:
  Loss from assets transferred under contractual
    arrangements (3)                                (2,500)    (4,363)        --        --        --
  Loss from operations to be disposed of (4)            --         --     (2,430)   (7,408)     (852)
  Gain on sale of general dental practices              --         --         --       296     1,678
  Cumulative effect of change in
    accounting principle                                --         --         --        --       824
                                                   --------  ---------  ---------  --------  --------
Income (loss) from discontinued operations          (2,500)    (4,363)    (2,430)   (7,112)    1,650
                                                   --------  ---------  ---------  --------  --------
  Net income (loss)                                $(8,952)  $(52,036)  $ (9,938)  $(5,493)  $ 3,052
                                                   ========  =========  =========  ========  ========

Basic net income (loss) per share:
  Income (loss) from continuing operations         $ (1.36)  $ (10.04)  $  (1.58)  $  0.34   $  0.30
  Income (loss) from discontinued operations         (0.53)     (0.92)     (0.51)    (1.50)     0.17
  Cumulative effect of change
    in accounting principle                             --         --         --        --      0.17
                                                   --------  ---------  ---------  --------  --------
  Net income (loss) per basic share                $ (1.89)  $ (10.96)  $  (2.09)  $ (1.16)  $  0.65
                                                   ========  =========  =========  ========  ========

  Weighted average basic shares outstanding          4,747      4,747      4,747     4,723     4,711

Diluted net income (loss) per share:
  Income (loss) from continuing operations         $ (1.36)  $ (10.04)  $  (1.58)  $  0.33   $  0.28
  Income (loss) from discontinued operations         (0.53)     (0.92)     (0.51)    (1.45)     0.17
  Cumulative effect of change
    in accounting principle                             --         --         --        --      0.17
                                                   --------  ---------  ---------  --------  --------
  Net income (loss) per diluted share              $ (1.89)  $ (10.96)  $  (2.09)  $ (1.12)  $  0.62
                                                   ========  =========  =========  ========  ========

  Weighted average diluted shares outstanding        4,747      4,747      4,747     4,899     4,940
</TABLE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA                 PRO FORMA
(IN THOUSANDS):                     2000 (5)
                                  -----------
<S>                               <C>          <C>        <C>        <C>      <C>      <C>

Cash and short-term investments     $ 16,702    $16,702    $ 6,281   $ 4,142  $12,906  $ 9,807
Current assets                        21,268     21,268     10,380    12,618   25,800   27,622
Total assets                          33,095     33,095     28,577    77,956   84,085   68,116
Current liabilities (6)               19,660     72,195     18,129    24,521   20,193   11,633
Long-term debt                           250        250     39,545    32,500   33,894   19,086
Stockholders' equity (deficit)        12,106    (40,429)   (31,614)   19,766   29,615   35,200
</TABLE>

                  See note explanations on the following page.


                                      -19-
<PAGE>
(1)  Represents  reductions  in  the carrying value of notes receivable in 2000,
     intangible assets in 1999, and notes receivable and real estate in 1998, to
     their  estimated  realizable  values.  See  Note  5  to  the  accompanying
     consolidated  financial  statements.
(2)  The  1999  amount  primarily  represents  a charge to establish a valuation
     allowance  against  net deferred tax assets. See Note 9 to the accompanying
     consolidated  financial  statements.
(3)  Represents  reductions  in  the  carrying value of assets transferred under
     contractual arrangements to their estimated realizable value. See Note 5 to
     the  accompanying  consolidated  financial  statements.
(4)  Represents operating losses related to discontinued operations prior to the
     date  they  were sold, and subsequent expenses related to those operations.
     See  Note  2  to  the  accompanying  consolidated  financial  statements.
(5)  Pro  forma  balance  sheet  as  though  the  conversion of debt and accrued
     interest  to  convertible  preferred  stock had occurred as of December 31,
     2000.  See  Note  14 to the accompanying consolidated financial statements.
(6)  The  increase  in  current liabilities in 2000 is primarily due to debt and
     accrued interest that was converted to convertible preferred stock in 2001.
     See  the  accompanying  consolidated  balance  sheets.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF  OPERATIONS
--------------

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The  Private  Securities  Litigation Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements,  as long as those statements are identified as
forward-looking  and  are  accompanied  by  meaningful  cautionary  statements
identifying  important  factors  that  could  cause  actual  results  to  differ
materially  from  those discussed in the statements. The Company desires to take
advantage  of  these  safe  harbor  provisions.

The  statements  contained  in  this  Management's  Discussion  and  Analysis of
Financial  Condition  and  Results of Operations concerning expected growth, the
outcome of business strategies, future operating results and financial position,
economic  and  market  events  and trends, future premium revenue, future health
care  expenses,  the  Company's ability to control health care, selling, general
and  administrative  expenses,  and all other statements that are not historical
facts,  are  forward-looking  statements.  Words  such  as  expects,  projects,
anticipates, intends, plans, believes, seeks or estimates, or variations of such
words  and  similar  expressions,  are also intended to identify forward-looking
statements.  These  forward-looking statements are subject to significant risks,
uncertainties  and  contingencies,  many  of which are beyond the control of the
Company.  Actual  results  may  differ  materially  from  those projected in the
forward-looking  statements,  which  statements involve risks and uncertainties.

The  Company's  ability to expand its business is affected by competition from a
large  number  of other entities, many of which are much larger and have greater
financial  resources than the Company, that offer dental plans in the markets in
which the Company operates. There is a risk that the Company will not be able to
increase  revenues  in  the  future  as  employer groups and other purchasers of
dental  coverage  continue  to  resist premium rate increases, while demanding a
wide  choice  of  dental  care  providers  and a high level of customer service.
Securing cost-effective contracts with dentists may become more difficult due to
increased  competition  among  dental plans for contracts with dental providers,
and  a possible decrease in the number of dentists in practice in the markets in
which  the  Company  operates.

There are risks associated with changes in the Company's operating and expansion
strategies,  and  the possible inability to realize all of the proceeds from the
recent  resale of certain dental office assets to a third party. There is a risk
that  the  Company  will  be  unable  to continue to improve its earnings before
interest,  taxes,  depreciation  and  amortization  ("EBITDA"),  as  any  such
improvement  is dependent upon a multitude of factors including, but not limited
to,  the  ability  of the Company to identify additional opportunities to reduce
costs.

There  is  a risk that the purchaser of certain resold dental office assets will
not  comply  with  its  agreement  to make rental payments on the related office
lease  agreements,  for which the Company remains contingently liable, and there
is a risk that other dentists who previously purchased dental practices from the
Company  will  not  make the required payments on their assigned or sublet lease
agreements,  for  which  the  Company  remains  contingently  liable.

There  is  a  risk  that the Company may incur additional expenses in connection
with the delivery of the dental office assets resold to the Purchaser, and there
are  risks  associated with additional health care expenses that may be incurred
by  the  Company  for  the  cost  of  the  completion  of orthodontic and dental
treatment that may be required to be paid in connection with the transfer of the
recently  resold  dental  office  assets.  There is a risk that the dentists who
purchased  a  number  of dental practices from the Company and issued promissory
notes  to  the  Company,  will  not  make  payments  on  such  promissory notes.


                                      -20-
<PAGE>
All  of  these  risks  and  uncertainties  could  have  a negative impact on the
estimated  net  proceeds  from  the  resale  of  the dental office assets by the
Company.

The  Company's  profitability  depends,  in  part,  on  its  ability to maintain
effective  control  over  its  health  care  costs, while providing members with
quality  dental  care. A variety of factors, such as utilization rates of dental
services,  changes  in  the value of the Company's assets, new technologies, the
cost  of dental services delivered by referral specialists, the amount of claims
incurred  by  patients  insured  by  the  Company,  and  numerous other external
influences  could  affect  the  Company's  operating  results.

All  of  the  risks set forth herein could negatively impact the earnings of the
Company  in  the  future. The Company's expectations for the future are based on
current  information  and  its evaluation of external influences. Changes in any
one factor could materially impact the Company's expectations related to premium
rates,  benefits plans offered, membership enrollment, the amount of health care
expenses  incurred, and profitability, and therefore, affect the forward-looking
statements  which  may  be  included in this report. In addition, past financial
performance  is  not  necessarily a reliable indicator of future performance. An
investor  should  not  use  historical  performance  alone  to anticipate future
results  or  future  period  trends.

SUMMARY  OF  RESULTS  OF  OPERATIONS

The following table shows the Company's results of operations as a percentage of
revenue,  and  is  used  in  the  year-to-year  comparisons  discussed  below.

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                ------------------------
                                                                 2000    1999     1998
                                                                ------  -------  -------
<S>                                                             <C>     <C>      <C>
Premium revenue                                                 100.0%   100.0%   100.0%

Health care services expense                                     69.5     71.5     67.7
Selling, general and administrative expense                      33.1     37.2     37.2
Loss on impairment of assets                                      0.5     25.5      2.5
                                                                ------  -------  -------

Operating income (loss)                                          (3.1)   (34.2)    (7.4)

Investment and other income                                       1.5      2.1      0.6
Interest expense                                                 (5.0)    (6.1)    (4.4)
                                                                ------  -------  -------

Income (loss) before income taxes and discontinued operations    (6.6)   (38.2)   (11.2)
Income tax expense (benefit)                                       --     11.4     (3.5)
                                                                ------  -------  -------

Income (loss) before discontinued operations                     (6.6)   (49.6)    (7.7)
Loss from discontinued operations                                (2.6)    (4.5)    (2.5)
                                                                ------  -------  -------

Net income (loss)                                               (9.2)%  (54.1)%  (10.2)%
                                                                ======  =======  =======
</TABLE>

2000  COMPARED  TO  1999

Premium  revenue  increased by $1.0 million, or 1.1%, from $96.2 million in 1999
to  $97.3 million in 2000. The average membership for which the Company provided
dental coverage decreased by approximately 78,000 members, or 8.8%, from 883,000
members  during  1999 to 805,000 during 2000. The decrease in the average number
of  members  is  primarily  due  to  the  loss of several customers during 2000.
Premium  revenue  increased  by 1.1% even though average membership decreased by
8.8%.  This  was  primarily  due  to a shift in the product mix toward preferred
provider  ("PPO")/indemnity  plans, which have higher premium rates than managed
care  plans, increases in premium rates, and a shift in the managed care product
mix  toward  managed  care  plans  with higher benefit levels and higher premium
rates.


                                      -21-
<PAGE>
Health  care  services  expense  decreased  by $1.2 million, or 1.8%, from $68.8
million  in  1999  to  $67.6  million in 2000. Health care services expense as a
percentage of premium revenue (the "loss ratio") decreased from 71.5% in 1999 to
69.5%  in  2000.  This decrease is primarily due to a decrease in the loss ratio
for  managed  care  products,  which  is primarily due to a reduction in certain
types  of non-standard payment arrangements to managed care providers during the
first  quarter of 2000. The decrease in the loss ratio for managed care products
was  partially  offset by a shift in the product mix toward PPO/indemnity plans,
which  have  a higher loss ratio than managed care plans. However, PPO/indemnity
plans  also  have  a  higher amount of gross margin (premium revenue less health
care  services  expense)  per  insured individual, and the Company believes they
have  significantly  lower general and administrative expenses than managed care
plans,  as  a  percentage  of  premium  revenue.

Selling, general and administrative ("SG&A") expenses decreased by $3.6 million,
or  10.1%, from $35.8 million in 1999 to $32.2 million in 2000. SG&A expenses as
a  percentage  of premium revenue decreased from 37.2% in 1999 to 33.1% in 2000.
The  decrease  in  SG&A  expenses  is  primarily  due  to the following reasons.
Salaries  and  benefits  decreased due to a reduction in the number of employees
during  the  first  quarter  of  2000, in connection with a consolidation of the
Company's  administrative  services into a single location. The decrease is also
partially due to a decrease in computer programming expenses, as the Company has
completed  several enhancements to its proprietary management information system
that  were  in process during 1999. Part of the decrease is due to a decrease in
amortization  expense  related to intangible assets. During the third quarter of
1999,  the  Company  recorded  a  $24.6  million  impairment  loss to reduce the
carrying  values  of its intangible assets to their estimated realizable values,
which  caused  a  decrease  in  amortization  expense  in  2000.

Loss on impairment of assets decreased from $24.6 million in 1999 to $450,000 in
2000.  The  loss  on  impairment  in 1999 is primarily due to a reduction in the
carrying  value  of  the  goodwill  and  non-compete  covenants  related  to the
acquisition of First American Dental Benefits, Inc. in 1996, and the acquisition
of  Advantage  Dental HealthPlans in 1997. The amount of the impairment loss was
determined  in  accordance  with  Accounting Principles Board Opinion No. 17, as
discussed  in  Note 5 to the accompanying consolidated financial statements. The
loss on impairment in 2000 is due to an increase in the reserve related to notes
receivable,  as  discussed  in  Note 5 to the accompanying financial statements.

Investment  and  other  income  decreased  by  $0.6 million, or 30.8%, from $2.0
million  in 1999 to $1.4 million in 2000. This decrease was primarily due to net
realized  gains  on the sale of investments of $1.2 million in 1999, compared to
nearly zero in 2000. This was partially offset by an increase in interest income
in  2000,  primarily  due  to  investment  of  the  proceeds of the $8.0 million
borrowing on March 1, 2000, as discussed in Note 7 to the accompanying financial
statements.

Total interest expense decreased by $1.0 million, or 16.1%, from $5.9 million in
1999  to $4.9 million in 2000. This decrease is primarily due to $1.9 million of
deferred  loan costs that were charged to expense during 1999. This decrease was
partially  offset by interest expense and amortization of deferred loan costs in
2000,  related  to  the $8.0 million borrowing on March 1, 2000, as discussed in
Note  7  to  the  accompanying  financial  statements.

The  loss  before  income taxes and discontinued operations decreased from $36.7
million,  or  38.2%  of  premium  revenue,  in 1999, to $6.5 million, or 6.6% of
premium revenue, in 2000. This decrease in the loss was primarily due to a $24.6
million  loss  on  impairment of assets in 1999, a $3.6 million decrease in SG&A
expenses,  and a decrease in the loss ratio from 71.5% in 1999 to 69.5% in 2000,
which  is  equal  to  a  $1.9  million decrease in health care services expense.

Income  tax expense decreased from $10.9 million in 1999 to zero in 2000. Income
tax  expense  in  1999  primarily represents a charge to earnings to establish a
deferred  tax  asset valuation allowance that was equal to the entire balance of
the  Company's  net  deferred  tax  assets.  The  Company recorded no income tax
expense  or  benefit in 2000 due to the valuation allowance against its deferred
tax  assets.  This  valuation allowance was established due to uncertainty about
whether the deferred tax assets will be realized in the future, primarily due to
operating  losses  incurred  by  the  Company  in  1998,  1999  and 2000 and the
existence  of  significant  net operating loss carry-forwards. See Note 9 to the
accompanying  financial  statements  for  more  information.


                                      -22-
<PAGE>
The  loss  from  discontinued  operations decreased from $4.4 million in 1999 to
$2.5  million  in 2000. The losses in both 1999 and 2000 represent reductions in
the carrying value of the net assets related to certain discontinued operations,
which  were  reflected  under  the  caption  "Assets  of discontinued operations
transferred  under  contractual  arrangements"  on the accompanying consolidated
balance  sheet. These assets were resold in October 2000, as discussed in Note 2
to  the  accompanying  financial  statements.

1999  COMPARED  TO  1998

Premium  revenue  decreased by $1.2 million, or 1.3%, from $97.4 million in 1998
to  $96.2 million in 1999. The average membership for which the Company provided
dental coverage decreased by approximately 60,000 members, or 6.4%, from 943,000
members  during  1998  to 883,000 during 1999. Premium revenue decreased by only
1.3% even though average membership decreased by 6.4%. This was primarily due to
a shift in the product mix toward PPO/indemnity plans, which have higher premium
rates  than  managed  care plans, increases in premium rates, and a shift in the
managed  care  product  mix  toward  plans with higher benefit levels and higher
premium  rates.

Health  care  services  expense  increased  by $2.8 million, or 4.2%, from $66.0
million  in  1998  to  $68.8  million in 1999. Health care services expense as a
percentage of premium revenue (the "loss ratio") increased from 67.7% in 1998 to
71.5%  in  1999. This increase is primarily due to an increase in the loss ratio
for  managed  care  products, which is due to an increase in specialist referral
claims  and an increase in supplemental payments to capitated providers, both as
a  percentage  of  managed  care  premium  revenue.  The  increase in specialist
referral  claims  is  primarily  due  to a shift in the managed care product mix
toward  richer  benefit plans that include coverage of more specialist services.
The increase in supplemental payments is due to the fact that the richer benefit
plans  also  cover more services for which general dentists receive supplemental
payments  from  the  Company,  in  addition  to the monthly capitation payments.

SG&A  expenses  decreased  by  $456,000,  or 1.3%, from $36.3 million in 1998 to
$35.8  million  in  1999.  SG&A  expenses as a percentage of premium revenue was
37.2% in both 1998 and 1999. There was not a significant change in SG&A expenses
from  1998  to  1999.

Loss  on  impairment  of  assets  increased  from  $2.4 million in 1998 to $24.6
million  in 1999. The loss on impairment in 1999 is primarily due to a reduction
in  the  carrying value of the goodwill and non-compete covenants related to the
acquisition of First American Dental Benefits, Inc. in 1996, and the acquisition
of  Advantage  Dental HealthPlans in 1997. The amount of the impairment loss was
determined  in  accordance  with  Accounting Principles Board Opinion No. 17, as
discussed  in  Note  5  to  the  accompanying  financial  statements.

Investment  and other income increased by $1.4 million, or 231.3%, from $624,000
in 1998 to $2.1 million in 1999. This increase was primarily due to net realized
gains  on  the  sale  of  investments  of  $1.2 million in 1999, compared to net
realized  losses  of  $618,000  in  1998.

Interest  expense increased by $1.6 million, or 35.8%, from $4.3 million in 1998
to $5.9 million in 1999. This increase was primarily due to expenses incurred in
connection  with restructuring the credit agreements related to the senior notes
payable  and  the revolving line of credit in May 1999. Those expenses consisted
of  $1.0 million of consulting and legal fees and the issuance of stock warrants
with  an  estimated value of $320,000 to the holder of the senior notes payable.
In addition, approximately $600,000 of other deferred loan costs were charged to
expense  in the third quarter of 1999, due to acceleration of the maturity dates
of  the  senior  notes  payable  and  revolving  line  of  credit.

The  loss  before  income taxes and discontinued operations increased from $10.9
million,  or  11.2%  of  premium revenue, in 1998, to $36.7 million, or 38.2% of
premium  revenue,  in  1999.  This increase in the loss was primarily due to the
$24.6  million  loss  on impairment of assets, and an increase in the loss ratio
from  67.7%  in 1998 to 71.5% in 1999. These factors were partially offset by an
increase in investment and other income from $624,000 in 1998 to $2.1 million in
1999.

Income  tax expense was $10.9 million in 1999, compared to an income tax benefit
of  $3.4  million in 1998. The income tax expense in 1999 primarily represents a
charge to earnings to establish a deferred tax asset valuation allowance that is
equal  to  the  entire  balance  of  the Company's net deferred tax assets. This
valuation  allowance  was  established  due  to  uncertainty  about  whether the
deferred  tax  assets will be realized in the future, primarily due to operating
losses incurred by the Company in 1999 and 1998 and the existence of significant
net  operating  loss  carry-forwards.  See  Note 9 to the accompanying financial
statements  for  more  information.


                                      -23-
<PAGE>
The  loss  from  discontinued  operations  to be disposed of increased from $2.4
million  in  1998  to  $4.4  million  in 1999. The loss in 1999 is due to a $6.5
million  reduction,  before  income  tax effect of $2.1 million, in the carrying
value  of  the  net assets related to certain discontinued operations, which are
reflected under the caption "Assets of discontinued operations transferred under
contractual  arrangements"  on the consolidated balance sheet. During the second
quarter  of  1999,  the  Company  recorded  a $6.5 million charge to earnings to
reduce  the  carrying value of these assets to their estimated realizable value.

LIQUIDITY  AND  CAPITAL  RESOURCES

Net  cash  used  by  operating  activities  decreased by $0.4 million, from $1.8
million  in  1999  to $1.4 million in 2000.  This improvement was due to several
reasons,  the  largest  of  which  are described below. Net cash used by the net
loss,  including  the  adjustments to reconcile net loss to net cash provided by
(used  in)  operating  activities,  decreased  from $6.7 million in 1999 to $3.0
million  in  2000, primarily due to a $3.6 million decrease in SG&A expenses, as
discussed  above.  The  increase  in  accrued expenses was $3.3 million in 2000,
compared  to  a decrease of $461,000 in 1999. The increase in 2000 was primarily
due  to liabilities related to the sale of "Assets transferred under contractual
arrangements"  in  October  2000,  as  discussed  in  Note 2 to the accompanying
financial  statements.  These  factors  were  partially offset by a net $668,000
decrease  in accounts payable and claims payable in 2000, compared to a combined
increase  of  $3.7  million in those liabilities in 1999. The increases in these
liability  accounts  in  1999  were primarily due to increases in the processing
time  for  both  accounts  payable  and  dental  claim payments during 1999. The
processing  time  for  both  accounts  payable  and  claims  payable  decreased
significantly during 2000. However, in the case of claims payable, this decrease
was offset by an increase in the amount of claims payable, due to a shift in the
product  mix  toward PPO/indemnity plans, for which the health care expenses are
reimbursed  based  on  claims  submitted,  instead  of  capitation  payments. In
addition, deferred revenue decreased by $562,000 in 2000, compared to a $953,000
increase  in  1999.  The decrease in 2000 was primarily due to a decrease in the
enrollment  of  individual subscribers who pay an annual premium in advance. The
increase  in 1999 was primarily due to earlier payment by employer groups due to
an  advance  in  the  Company's  billing  cycle.

Net cash used by investing activities was $10.1 million during 2000, compared to
$1.9  million  of net cash provided in 1999. The net cash used in 2000 consisted
primarily  of  the  purchase  of  investments  using  the proceeds from the $8.0
million  loan  in  March 2000, and the proceeds from $1.3 million of payments on
notes receivable. Net cash provided by financing activities was $11.3 million in
2000,  compared  to $1.4 million of net cash used in 1999. The net cash provided
by  financing  activities  in  2000 consisted primarily of the proceeds from the
$8.0  million  loan in March 2000, and the increase in accrued interest that was
converted  to  convertible  preferred  stock  in  2001,  as  discussed  below.

The  Company's  total debt increased from $39.8 million at December 31, 1999, to
$48.0  million at December 31, 2000. This increase was primarily due to the $8.0
million  borrowing  in  March  2000,  as  discussed  below.  See  Note  7 to the
accompanying  financial statements for a description of all the debt outstanding
as  of  December  31,  2000.

On  March  1, 2000, the Company entered into a recapitalization transaction with
an  investor  group (the "Investors"), the revolving credit facility lender (the
"Bank"),  and the holder of the senior notes payable (the "Senior Note Holder").
In  this  transaction,  the  Investors loaned $8.0 million to the Company in the
form  of  an  investor  senior  loan,  which  was due April 30, 2001, and had an
interest  rate  of  10%  annually.  The Investors, the Bank, and the Senior Note
Holder  agreed to convert the $8.0 million investor senior loan, the outstanding
balance  of  $7.0  million  under  the  revolving credit facility, and the $32.5
million  of  senior  notes  payable  to  convertible preferred stock, subject to
regulatory  and  stockholder  approval.

In  connection  with  the  recapitalization  transaction,  both the Bank and the
Senior  Note  Holder  agreed not to demand or accept any payment of principal or
interest  under  their  respective  credit  agreements,  and  not  to  take  any
enforcement  actions of any kind under those agreements until April 30, 2001. As
of  December  31,  2000,  the  Company was subject to various financial covenant
requirements  under  the  credit  agreements  with  the Bank and the Senior Note
Holder. The Company was not in compliance with those requirements as of December
31,  2000.  Accordingly,  these outstanding balances are reflected as short-term
debt  on  the  accompanying  balance  sheet  as  of  December  31,  2000.


                                      -24-
<PAGE>
Effective  as  of  January 31, 2001, the Company completed the conversion of the
investor senior loan ($8.0 million), the outstanding balance under the revolving
credit  facility  ($7.0  million), the senior notes payable ($32.5 million), and
the  accrued  interest  on  the  revolving  credit facility and the senior notes
payable  ($5.0  million  as  of  December  31,  2000)  into  300,000  shares  of
convertible  preferred  stock.  The estimated value of the convertible preferred
stock  as  of  January  31,  2001,  was $137.50 per share, which is based on the
closing  price  of  the  Company's  common  stock on January 31, 2001, which was
$1.375 per share, and the fact that each share of convertible preferred stock is
convertible  into 100 shares of common stock. Based on this estimated value, the
conversion  transaction resulted in a gain of $11.3 million. It is expected that
there  will  be  no  income  tax  effect related to this transaction, due to the
Company's  net  operating  loss carry-forwards for tax purposes, as discussed in
Note  10  to  the  accompanying  financial  statements.

The  convertible  preferred  stock  does  not accrue dividends of any kind. Each
share  of  convertible  preferred stock is convertible into 100 shares of common
stock  at the option of the holder. The convertible preferred stock entitles the
holder to one vote for each share of common stock into which the preferred stock
is  convertible, with respect to all matters voted on by the common stockholders
of  the  Company,  except  for  the  election  of  directors. The holders of the
convertible  preferred  stock have the right to elect a total of five members of
the  board  of  directors, and the holders of the common stock have the right to
elect  the  remaining  two  directors.  The  convertible  preferred  stock has a
liquidation  preference  over  the  common  stock  of  the  Company.

As  a  result  of  the  conversion  transaction,  the previously existing common
stockholders  of  the  Company  now  own  approximately  14% of the common stock
interests  of  the  Company.  In  March  2000, in connection with the conversion
transaction,  the  Company agreed to place four new directors, who represent the
Investors,  the  Bank,  and  the  Senior Note Holder, on its board of directors.
Three  of those directors were placed on the board in March 2000, and the fourth
director  was  placed  on  the board as of January 31, 2001. These new directors
constitute  a majority of the board of directors, which currently has a total of
seven  members.

In  1999, in connection with a transaction in which the Company restructured its
credit  agreement  with  the  Senior Note Holder, the Company issued warrants to
purchase  382,000  shares of common stock for $4.51 per share to the Senior Note
Holder.  The  warrants  were  exercisable  at  any  time from January 1, 2000 to
December  31,  2003.  In  connection  with the recapitalization transaction, the
Senior  Note  Holder  agreed  to  cancel  the  warrants  upon  conversion of the
Company's  outstanding  debt into convertible preferred stock. The warrants were
cancelled  as  of  January  31,  2001,  in connection with the conversion of the
Senior  Notes  Payable  to  convertible  preferred  stock.

Under  the  credit  agreements related to both the revolving credit facility and
the  senior  notes  payable,  the  Company  is  subject to various loan covenant
requirements.  The  Company  was not in compliance with those requirements as of
December  31,  2000,  and,  therefore,  the  balances  outstanding  under  these
agreements  are  classified as short-term debt as of December 31, 2000. However,
as  noted  above, the outstanding balances under these agreements were converted
into  convertible  preferred  stock  in  January  2001.

The Company believes it has adequate financial resources to continue its current
operations  for  the foreseeable future. However, there can be no assurance that
there  will  not  be  any  unforeseen  events that could have a material adverse
impact  on  the  Company's  financial  position  and  the  adequacy  of its cash
balances.

RECENT  ACCOUNTING  PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial  Accounting  Standards  No.  133  ("SFAS  133"),  "Accounting  for
Derivative Instruments and Hedging Activities." SFAS No. 133 was amended by SFAS
No.  137,  "Accounting  for  Derivative  Instruments  and  Hedging  Activities -
Deferral  of  the  Effective Date of SFAS No. 133" in June 1999, and by SFAS No.
138,  "Accounting  for  Certain  Derivative  Instruments  and  Certain  Hedging
Activities"  in  June 2000. SFAS No. 133, as amended, establishes accounting and
reporting  standards  for  derivative  instruments, including certain derivative
instruments  embedded  in other contracts, and for hedging activities. SFAS 133,
as  amended,  requires  derivatives  to be reported on the balance sheet at fair
value, and was adopted on January 1, 2001. The adoption of SFAS 133, as amended,
had  no  significant  effect  on  the  Company's  financial  statements.


                                      -25-
<PAGE>
In  December  1999,  the United States Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles  to  revenue  recognition issues in financial statements. SAB 101 was
effective  for  the  Company  beginning in the fourth quarter of the year ending
December  31,  2000.  The  adoption  of SAB 101 had no significant effect on the
Company's  financial  statements.

In  March  2000,  the  FASB  issued  FASB  Interpretation  No.  44  ("FIN  44"),
"Accounting  for  Certain  Transactions Involving Stock Compensation." FIN 44 is
effective  July  1,  2000  with  respect to certain provisions applicable to new
awards,  exchanges  of  awards  in  a  business  combination,  modifications  to
outstanding  awards,  and  changes in grantee status that occur on or after that
date.  FIN  44 addresses certain issues related to the application of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
adoption  of  FIN  44  had  no  significant  effect  on  the Company's financial
statements.

IMPACT  OF  INFLATION

The Company's operations are potentially impacted by inflation, which can affect
premium  rates,  health  care  services  expense,  and  selling,  general  and
administrative  expenses.  The  Company  expects  that  its  earnings  will  be
positively  impacted  by  inflation  in premium rates, because premium rates for
dental  benefit plans in general have been increasing due to inflation in recent
years.  The  Company  expects  that  its earnings will be negatively impacted by
inflation  in  health  care  costs,  because  fees charged by dentists and other
dental  providers  have  been  increasing  due to inflation in recent years. The
impact  of  inflation  on the Company's health care expenses is mitigated in the
short-term  by  the  fact  that  approximately 40% of total health care services
expense  consists  of capitation payments to providers. In addition, most of the
Company's  selling,  general and administrative expenses are impacted by general
inflation  in  the  economy.

ITEM  7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK
---------------------------------------------------------------------------

The  Company  is  not subject to a material amount of risk related to changes in
interest  rates  or  foreign  currency  exchange  rates.

ITEM  8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA
---------------------------------------------------------

The  Consolidated  Financial  Statements  and  the  related  Notes and Schedules
thereto  filed as part of this 2000 Annual Report on Form 10-K are listed on the
accompanying  Index  to  Financial  Statements  on  page  F-1.

ITEM  9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING
--------------------------------------------------------------------------------
         AND  FINANCIAL  DISCLOSURE
         --------------------------

During  the  two  most  recent  fiscal  years, there have been no changes in the
Company's independent auditors or disagreements with such auditors on accounting
principles  or  financial  statement  disclosures.


                                      -26-
<PAGE>
PART  III
ITEM  10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT
-------------------------------------------------------------------

The  current  directors  and  executive  officers of the Company are as follows:

<TABLE>
<CAPTION>
          NAME                 AGE               POSITION
----------------------------  ----  --------------------------------------------------------------
<S>                           <C>   <C>
  James E. Buncher              64  President, Chief Executive Officer and Director
  Ronald I. Brendzel, JD        51  Senior Vice President, General Counsel, Secretary and Director
  Dennis L. Gates, CPA          45  Senior Vice President, Chief Financial Officer and Director
  Carlos Ferrera                37  Vice President, Operations
  Kenneth E. Keating            37  Vice President, Sales and Marketing
  Barbara Lucci                 41  Vice President, Corporate Services
  John F. Steen                 46  Vice President, Development and Provider Relations
  Mik L. Summers                42  Chief Information Officer
  Michael B. Sutherland, DDS    54  Vice President and Dental Director
  Steven J. Baileys, DDS        47  Chairman of the Board of Directors
  Jack R. Anderson              76  Director (1)
  Stephen J. Blewitt            41  Director
  Leslie B. Daniels             53  Director (1)

<FN>
_______________________________
(1)  Member  of  Compensation  and  Stock  Option  Committee,  and  Audit  Committee.
</TABLE>

Mr.  Buncher,  Mr.  Anderson  and Mr. Daniels became directors of the Company on
March 1, 2000, in connection with the recapitalization transaction that occurred
on March 1, 2000 (see Key Developments for more discussion of this transaction).
Mr.  Blewitt became a director of the Company on February 8, 2001, in connection
with  the  completion  of the recapitalization transaction. All directors of the
Company  are  elected annually. Officers of the Company serve at the pleasure of
the board of directors, subject to certain contracts of employment. See Item 11.
-  Executive  Compensation below for a description of employment agreements with
the  Named  Executive  Officers.

Mr. Buncher has been President and Chief Executive Officer of the Company, and a
director  of  the Company, since March 2000. From July 1998 to February 2000, he
was  a  private investor.  Mr. Buncher was President and Chief Executive Officer
of  Community Dental Services, Inc., a corporation operating dental practices in
California, from October 1997 until July 1998.  Mr. Buncher was President of the
Health  Plans  Group  of  Value  Health, Inc., a national specialty managed care
company, from September 1995 to September 1997. He served as Chairman, President
and  Chief  Executive  Officer  of  Community Care Network, Inc., a Value Health
subsidiary,  from  August 1992 to September 1997, when Value Health was acquired
by  a third party and Mr. Buncher resigned his positions with that company.  Mr.
Buncher currently serves on the board of directors of Horizon Health Corporation
and  two  other  non-public  health  care  companies.

Mr.  Brendzel  has  been Senior Vice President, General Counsel, Secretary and a
director  of  the  Company since 1989. He was Chief Financial Officer from April
1988  to May 1996, Vice President - Corporate Development from August 1980 until
April  1986,  and  held various executive and administrative positions from 1978
until 1980. Mr. Brendzel is a member of the California State Bar and is licensed
to  practice  law in the state of California. From 1987 to 2000, he was a member
of  the  Knox-Keene  Health Care Service Plan Advisory Committee, which assisted
the  California  Department  of  Corporations, the predecessor of the California
Department  of Managed Health Care, in regulating managed care health plans. Mr.
Brendzel  is  also  a former member of the Texas Health Maintenance Organization
Solvency Surveillance Committee, which assists the Texas Department of Insurance
in  regulating  health  maintenance  organizations.  Mr.  Brendzel  is  the
brother-in-law  of  Dr.  Baileys.

Mr.  Gates  has  been  Senior  Vice  President and Chief Financial Officer since
November  1999,  and  has been a director of the Company since March 2000.  From
June  1995  to  February  1999,  he  served  as  Chief  Financial  Officer, then
Treasurer,  of  Sheridan  Healthcare,  Inc.,  a  physician  practice  management
company.  From  June  1994 to May 1995, he served as Vice President - Finance of
the  California  Health  Plan Division of FHP International, Inc.  From November
1988  to  June  1994,  he  served  as  Vice  President  - Finance, Secretary and
Treasurer  of  TakeCare,  Inc.,  a  health  maintenance  organization  company.


                                      -27-
<PAGE>
Mr.  Ferrera  has been Vice President, Operations since February 2000. He served
as Vice President - Information Technologies from October 1997 to February 2000.
Mr. Ferrera served as Vice President - SafeHealth Life Insurance Operations from
October  1995,  when  he joined the Company, to October 1997. From March 1988 to
October  1995,  Mr.  Ferrera  was  Director  of  Provider  Relations and Product
Consultant  for  CIGNA  Dental Health. Prior to that, he was a Staff Sergeant in
the  United  States  Air  Force.

Mr.  Keating  has  been Vice President, Sales and Marketing since February 2000.
He  was  Western  Regional  Vice  President  of the Company from October 1997 to
February  2000.  He was Vice President-Imprimis and Guards Office Operations for
the  Company  from  October  1995  until  October  1997.  He  was  Vice
President-SafeHealth  Life Insurance Operations from August 1995, when he joined
the  Company,  until  October  1995.  From  March 1987 to July 1995, Mr. Keating
served  in  various  executive  capacities  for  CIGNA  Dental Health, including
Director  of  Sales  and  Account  Services, Director of Network Development and
Director  of  Staff  Model  Operations.

Ms.  Lucci  has been Vice President, Corporate Services since February 2000. She
served  as  Director of Corporate Services and Human Resources from January 1996
to  February  2000.  From  March  1994,  when she joined the Company, to January
1996,  Ms.  Lucci was a Broker Specialist and Sales and Marketing Administrator.
From  February  1988  to  March  1994,  Ms.  Lucci  served  as  Vice President -
Franchise  Real  Estate  Administration  of  Conroy's,  Inc.  From March 1985 to
February  1988,  Ms.  Lucci  was  Vice  President - Administration and Assistant
Operations  Officer  for  Dr.  Howard  M.  Stein  Dental  Groups.

Mr.  Steen  has  been  Vice  President, Development and Provider Relations since
November  2000,  when  he  joined  the  Company.  He  served as President, Chief
Executive  Officer  and  a  Director  of American Home Services from May 1998 to
November  2000. From January 1995 to May 1998, Mr. Steen served as President and
Chief Executive Officer of Caregivers Home Health, Inc. Mr. Steen was one of the
original  founders  of  United  Dental  Care,  Inc. and served as Executive Vice
President,  Chief  Financial  Officer  and  Secretary  from October 1985 through
January  1995.

Mr. Summers has been Chief Information Officer since November 2000. He served as
Director  of Information Services from July 1999 to November 2000. From November
1998,  when  he joined the Company, to July 1999, Mr. Summers served as Database
Administrator  and  Director  of Computer Operations. From April 1994 to October
1998,  he served as Manager of Application Implementation with the U.S. Treasury
Department.  Mr.  Summers  also  served  in other information systems management
positions  with  the  U.S. Treasury Department from February 1991 to April 1994.
From  1980 to 1991, he served in various management positions for Grief Brothers
Corporation.

Dr.  Sutherland has been Vice President and Dental Director since May 2000, when
he  joined  the Company.  He served as Vice President of Clinical Operations and
Dental  Director  of  Community  Dental  Services, Inc., a corporation operating
dental  practices  in  California,  from  February  1997  to  March  2000.  Dr.
Sutherland  owned  and  operated a number of dental practices from 1980 to 1997.
He  served  in  the  Naval  Dental  Corp  from  1977 to 1980.  Dr. Sutherland is
licensed  to practice dentistry in California, and is a member of the California
Dental  Association  and  the  American  Dental  Association.

Dr. Baileys has been Chairman of the Board of Directors since September 1995. He
served  as  President  of  the  Company  from  1981  until  March 1997 and Chief
Executive Officer from May 1995 to February 2000. He was Chief Operating Officer
from  1981 to May 1995. From 1975 until 1981, Dr. Baileys served in a variety of
executive  and  administrative  capacities  with  the  Company.  Dr.  Baileys is
licensed to practice dentistry in the State of California. He is a member of the
Southern  California  chapter of the Young Presidents' Organization. Dr. Baileys
currently  serves  on  the  board  of  directors  of  KRUG  International  Corp.

Mr.  Anderson has been President of Calver Corporation, a health care consulting
and investment firm, and a private investor, since 1982.  Mr. Anderson currently
serves  on  the  board  of  directors  of  Horizon  Health  Corporation  .


                                      -28-
<PAGE>
Mr. Blewitt is a Managing Director in the Bond & Corporate Finance Group of John
Hancock Life Insurance Company and has been employed by John Hancock since 1982.
Mr.  Blewitt  is  also  Co-President  &  Portfolio  Manager of Hancock Mezzanine
Investments LLC, the General Partner of Hancock Mezzanine Partners, L.P., a fund
that  invests  primarily in mezzanine debt securities. Mr. Blewitt received a BA
in  Economics  from  the University of Chicago and an MBA from Boston University
Graduate  School  of  Management.  Mr.  Blewitt  is currently a director of John
Hancock  Capital  Growth  Management,  Inc.,  Learning  Curve  International and
Medical  Resources,  Inc.

Mr.  Daniels was a founder of CAI Advisors & Co., an investment management firm,
in  1989 and has been a principal of that entity and its related investment fund
vehicles  since  then.  Mr.  Daniels  has  substantial experience investing as a
principal  in the health care industry.  Over the last 20 years, Mr. Daniels has
invested  in  numerous  start-up,  venture  capital  and  buyout transactions in
various  sectors  across  the health care spectrum, including health maintenance
organizations,  hospitals,  nursing homes, cancer treatment centers, psychiatric
and  substance abuse services, generic drugs, pre-clinical and clinical contract
research organizations and pharmacy benefit companies.  Mr. Daniels is currently
a  director  of  Pharmakinetics  Laboratories,  Inc. and MIST Inc. He was a past
Chairman  of  Zenith Laboratories, Inc. and has been a director of several other
public  and  private  companies.


                                      -29-
<PAGE>
ITEM  11.  EXECUTIVE  COMPENSATION
----------------------------------

The following table discloses compensation paid to the Company's Chief Executive
Officer  as  of  December  31,  2000, and the other four most highly compensated
executive  officers  as  of December 31, 2000 who received total compensation in
excess of $100,000 during the year ended December 31, 2000 (the "Named Executive
Officers"). The compensation disclosed is for the three years ended December 31,
2000.

<TABLE>
<CAPTION>
                                                                                           LONG-TERM
                                                                                          COMPENSATION
                                                                                             AWARDS
                                                       ANNUAL  COMPENSATION      LIFE     -------------
                                                     -----------------------   INSURANCE  STOCK OPTIONS
NAME                           PRINCIPAL POSITION     YEAR     SALARY   BONUS   PREMIUMS     GRANTED
---------------------------  ----------------------  -------  --------  ------  ---------  ------------
<S>                          <C>                     <C>      <C>       <C>     <C>        <C>
James E. Buncher             President and Chief        2000  $187,500  $   --  $      --  600,000
                             Executive Officer (1)      1999        --      --         --      --
                                                        1998        --      --         --      --

Steven J. Baileys            Chairman and Chief         2000  $166,667  $   --  $      --  200,000
                             Executive Officer (2)      1999   400,000      --      1,260      --
                                                        1998   400,000      --      1,260   70,000

Dennis L. Gates              Senior Vice President      2000   203,750      --         --  375,000
                             and Chief Financial        1999    34,833      --         --   50,000
                             Officer (3)                1998       --       --         --      --

Ronald I. Brendzel           Senior Vice President,     2000   185,000      --         --  120,000
                             General Counsel and        1999   185,000      --        900      --
                             Secretary                  1998   185,000      --        900    5,000

Kenneth E. Keating           Vice President,            2000   170,654      --         --  120,000
                             Sales and Marketing (4)    1999   150,000      --         --      --
                                                        1998   150,000      --         --    5,000

Carlos Ferrera               Vice President,            2000   160,763      --         --  120,000
                             Operations                 1999   140,000      --         --      --
                                                        1998   142,885      --         --    5,000

<FN>
(1)  Mr.  Buncher joined the Company as President and Chief Executive Officer in
     March  2000.
(2)  Dr.  Baileys  served  as  the  Chief Executive Officer of the Company until
     March  1,  2000.  He  continued as an employee of the Company until June 1,
     2000,  when  he  became  a  consultant  to the Company at an annual rate of
     $200,000  for  a  two  (2)  year period through May 31, 2002. In connection
     therewith,  Dr.  Baileys  also  received  non-statutory options to purchase
     200,000  shares  of  common  stock at an exercise price of $1.00 per share,
     which  options  vest at the expiration of his consulting agreement and must
     be  exercised  not later than one (1) year thereafter or one (1) year after
     he  ceases  to  be  a  director  of  the  Company,  whichever  occurs last.
(3)  Mr.  Gates  joined  the  Company  in  November  1999.
(4)  Mr.  Keating  became  Vice President, Sales and Marketing in February 2000.
     Prior  thereto,  he  was  Western  Regional  Vice  President.
</TABLE>

The  Company  has  employment  agreements with Messrs. Buncher, Gates, Brendzel,
Keating, and Ferrera, which expire on June 30, 2002. The current annual salaries
of  each  of  these  executives  are $250,000, $200,000, $185,000, $180,000, and
$175,000,  respectively,  in  addition  to  potential  performance bonuses.  The
Company  may  terminate  any  of  the  agreements  for  cause  without  further
compensation  responsibility  to  the  employee,  or without cause by paying the
employee  an  amount  as  described  below.  Each  executive  may  terminate his
employment  agreement for any reason.  In the event that more than fifty percent
(50%)  of  the Company's outstanding Common Stock is purchased by an entity that
is  not  an  existing  stockholder  and there is a substantial diminution of the
employee's authority or job responsibilities, then the executive, at his option,
may  terminate  his  employment  agreement.  In  such  event,  or if the Company
terminates  the  employment agreement without cause, the Company is obligated to
pay  the  executive  an amount equal to the employee's current annual salary, or
the  amount  due through the end of the employment agreement, whichever is less,
but  in  no  event  less than six (6) months of the employee's compensation rate
then  in  effect.


                                      -30-
<PAGE>
STOCK  OPTION  GRANTS  DURING  THE  YEAR  ENDED  DECEMBER  31,  2000

Stock  options  granted  to  the  Named Executive Officers during the year ended
December  31,  2000  were  as  follows.


<TABLE>
<CAPTION>
                INDIVIDUAL STOCK OPTION GRANTS
----------------------------------------------------------------
                     NUMBER OF  % OF TOTAL                         POTENTIAL  REALIZABLE VALUE
                      SHARES     OPTIONS                             AT ASSUMED ANNUAL RATES
                    UNDERLYING  GRANTED TO  EXERCISE              OF STOCK PRICE APPRECIATION
                      OPTIONS   EMPLOYEES  PRICE PER   EXPIRATION     FOR OPTION TERM(2)
NAME                  GRANTED    IN 2000     SHARE      DATE (1)        5%          10%
------------------  ---------  ----------  ----------  ----------  ----------  -------------
<S>                 <C>        <C>         <C>         <C>         <C>         <C>
James E. Buncher      600,000       28.8%       $1.00  March 2010    $281,537    $752,945
Steven J. Baileys     200,000        9.6%        1.00  June 2003       93,846     250,982
Dennis L. Gates       375,000       18.0%        1.00  March 2010     175,961     470,591
Ronald I. Brendzel    120,000        5.8%        1.00  March 2010      56,307     150,589
Kenneth E. Keating    120,000        5.8%        1.00  March 2010      56,307     150,589
Carlos Ferrera        120,000        5.8%        1.00  March 2010      56,307     150,589


<FN>
(1)  Subject  to  the  terms  of  the applicable option agreements, the exercise
     price  may  be  paid  in  cash  or  in  shares of common stock owned by the
     optionee,  or  by  a  combination  of  the  foregoing.
(2)  Of  the  options  granted to Messrs. Buncher and Gates, options for 100,000
     shares each per year vest and become exercisable on March 1, 2001 and March
     1,  2002.  All  other  options  vest  and become exercisable in three equal
     annual  installments.  Exercisability  of the options may be accelerated in
     the  event  of  a commencement of a tender offer for shares of the Company,
     the signing of an agreement for certain mergers or consolidations involving
     the  Company,  the  sale  of  all or substantially all of the assets of the
     Company,  a  change  of  control,  or certain other extraordinary corporate
     transactions.  The options are subject to early termination in the event of
     the  optionee's  termination of employment or cessation of service with the
     Company.
(3)  There is no assurance that the actual stock appreciation over the remaining
     term of the options will be at the assumed five percent (5%) or ten percent
     (10%)  levels or at any other defined level. Unless the market price of the
     common stock does in fact appreciate over the option term, no value will be
     realized  from  the  option  grants.
</TABLE>

STOCK  OPTION  EXERCISES  AND  YEAR-END  STOCK  OPTION  VALUES

There  were  no  stock  options exercised by any of the Named Executive Officers
during  the  year  ended  December  31,  2000.  Stock  options held by the Named
Executive  Officers at December 31, 2000 are shown in the following table. There
were  no  stock  appreciation  rights  outstanding  as  of  December  31,  2000.

<TABLE>
<CAPTION>
                    STOCK OPTIONS EXERCISED    NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                    -----------------------  UNDERLYING  UNEXERCISED       IN-THE-MONEY  OPTIONS
                       SHARES               OPTIONS AT FISCAL YEAR-END     AT  FISCAL  YEAR-END
                      ACQUIRED     VALUE    --------------------------  ---------------------------
NAME                ON EXERCISE  REALIZED   EXERCISABLE  UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
------------------  -----------  ---------  -----------  -------------  ------------  --------------
<S>                 <C>          <C>        <C>          <C>            <C>           <C>

James E. Buncher             --  $      --           --        600,000  $         --  $           --
Steven J. Baileys            --         --           --        200,000            --              --
Dennis L. Gates              --         --       16,667        408,333            --              --
Ronald I. Brendzel           --         --       43,333        121,667            --              --
Kenneth E. Keating           --         --       13,333        121,667            --              --
Carlos Ferrera               --         --        8,333        121,667            --              --
</TABLE>


                                      -31-
<PAGE>
ITEM  12.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT
--------------------------------------------------------------------------------

The  following  table  shows  the  number of shares of common stock beneficially
owned as of March 15, 2001, by each director, each Named Executive Officer, each
entity  that,  to  the Company's knowledge, beneficially owned 5% or more of the
total  outstanding  common  stock  of the Company, and all current directors and
Named  Executive  Officers  as  a group. The number of shares beneficially owned
includes  the  number  of  shares  of  common  stock  into which the convertible
preferred  stock held by each person is convertible. To the Company's knowledge,
the named person has sole voting and investment power with respect to all shares
of  common  stock  listed,  except  where  indicated  otherwise.

<TABLE>
<CAPTION>
                                                                     NUMBER OF SHARES
                                                                       BENEFICIALLY     % OF TOTAL SHARES
OFFICER OR DIRECTOR                                                      OWNED (1)       OUTSTANDING (2)
-------------------------------------------------------------------  -----------------  -----------------
<S>                                                                  <C>                <C>
  John Hancock Life Insurance Company (3)                                   15,000,000               43.2
  CAI Capital Partners & Company II, Limited Partnership (4)                 8,467,244               24.4
  Leslie B. Daniels (5)                                                         37,155                  *
  Jack R. Anderson (6)                                                       3,167,615                9.1
  Steven J. Baileys (7)                                                      2,711,267                7.8
  The Burton Partnership (8)                                                 2,199,185                6.3
  James E. Buncher (9)                                                         460,333                1.3
  Ronald I. Brendzel (10)                                                      296,573                  *
  Dennis L. Gates (11)                                                         275,000                  *
  Kenneth E. Keating (12)                                                       55,000                  *
  Carlos Ferrera (13)                                                           50,000                  *
  Stephen J. Blewitt (3)                                                            --                  *

  All directors and Named Executive Officers as a group (9 persons)         30,483,032               86.3

  All principal stockholders in total                                       32,682,217               92.5

* Indicates less than one percent (1%).

_______________________________________
<FN>
(1)  Includes  the  number  of shares of common stock into which the convertible
     preferred  stock  held  by each person is convertible. Also includes shares
     issuable  pursuant  to stock options that are exercisable within 60 days of
     March  15,  2001. Some of the stockholders included in this table reside in
     states  having  community  property  laws  under  which  the  spouse  of  a
     stockholder  in  whose  name  securities  are registered may be entitled to
     share  in the management of their community property, which may include the
     right  to  vote  or  dispose  of  such  shares.

(2)  For  purposes  of  computing  all  the  percentages above, the total shares
     outstanding  includes the shares of common stock into which all outstanding
     convertible  preferred  stock is convertible. For purposes of computing the
     percentage  for  each individual, the total shares outstanding includes the
     shares  issuable  to  that  person  pursuant  to  stock  options  that  are
     exercisable within 60 days of March 15, 2001. For purposes of computing the
     percentages  for  all  directors  and  officers  as  a  group,  and for all
     principal  stockholders  as  a group, the total shares outstanding includes
     all  the shares issuable pursuant to stock options that are included in the
     above  table.

(3)  Mr.  Blewitt  is  employed  by  an affiliate of John Hancock Life Insurance
     Company,  which has beneficial ownership of 15,000,000 shares issuable upon
     conversion  of  shares  of  convertible  preferred  stock,  as to which Mr.
     Blewitt disclaims beneficial ownership. The address of Mr. Blewitt and John
     Hancock Life Insurance Company is John Hancock Place, P.O. Box 111, Boston,
     Massachusetts  02117.

(4)  Includes  37,155  shares  of  common  stock  owned directly by Mr. Daniels,
     2,780,796  shares  issuable  upon  conversion  of  shares  of  convertible
     preferred  stock  owned  by CAI Partners & Company II, Limited Partnership,
     and  5,649,293  shares  issuable  upon  conversion of shares of convertible
     preferred  stock  owned  by  CAI  Capital  Partners  &  Company II, Limited
     Partnership  (collectively  "CAI").  Mr.  Daniels  is  a  principal of both
     entities.  The  address  of  CAI  and  Mr. Daniels is 767 Fifth Avenue, 5th
     Floor,  New  York,  New  York  10153.


                                      -32-
<PAGE>
(5)  Represents  37,155  shares  of  common stock owned directly by Mr. Daniels.
     Does  not  include  2,780,796  shares issuable upon conversion of shares of
     convertible  preferred  stock  owned  by CAI Partners & Company II, Limited
     Partnership,  and  5,649,293  shares  issuable upon conversion of shares of
     convertible  preferred  stock  owned  by CAI Capital Partners & Company II,
     Limited  Partnership  (collectively  "CAI").  Mr. Daniels is a principal of
     both  entities.  The address of Mr. Daniels is 767 Fifth Avenue, 5th Floor,
     New  York,  New  York  10153.

(6)  Includes 1,802,885 shares issuable upon conversion of shares of convertible
     preferred  stock  and  183,000 shares of common stock held by Mr. Anderson.
     Also  includes  1,081,730  shares  issuable  upon  conversion  of shares of
     convertible preferred stock and 100,000 shares of common stock owned by Mr.
     Anderson's  spouse as separate property, as to which Mr. Anderson disclaims
     beneficial  ownership. The address of Mr. Anderson is 16475 Dallas Parkway,
     Suite  735,  Addison,  Texas  77001.

(7)  Includes  645,000  shares  of  common  stock  held by Dr. Baileys directly,
     912,500  shares issuable upon conversion of shares of convertible preferred
     stock  held  by  the  Baileys  Family  Trust  and affiliated trusts for the
     benefit of various relatives of Dr. Baileys, 700,767 shares of common stock
     owned  by  the Baileys Family Trust, 303,000 shares of common stock held in
     various trusts for relatives of Dr. Baileys, as to all of which Dr. Baileys
     is trustee and for which Dr. Baileys has sole power to vote the securities,
     and  150,000 shares of common stock held by the Alvin and Geraldine Baileys
     Foundation,  for which Dr. Baileys is an officer and director and for which
     Dr.  Baileys has shared power to vote the securities. Dr. Baileys disclaims
     beneficial  ownership  of any of the shares in the trusts or the foundation
     referenced above. The address of Dr. Baileys is 95 Enterprise, Aliso Viejo,
     California  92656-2605.

(8)  Includes  130,325  shares  of common stock and 419,470 shares issuable upon
     conversion  of  shares  of  convertible preferred stock owned by the Burton
     Partnership,  Limited  Partnership  ("BPLP"),  and 390,975 shares of common
     stock  and  1,258,415  shares  issuable  upon  conversion  of  shares  of
     convertible  preferred  stock owned by the Burton Partnership (QP), Limited
     Partnership  ("QP").  Mr. Donald W. Burton is a principal of both entities.
     The  address  of BPLP, QP and Mr. Burton is P.O. Box 4643, Jackson, Wyoming
     83001.

(9)  Includes  200,000  shares issuable upon conversion of shares of convertible
     preferred  stock,  and options to purchase 233,333 shares of common stock .

(10) Includes  100,000  shares issuable upon conversion of shares of convertible
     preferred  stock,  and  options  to purchase 85,000 shares of common stock.

(11) Includes  100,000  shares issuable upon conversion of shares of convertible
     preferred  stock,  and  options to purchase 175,000 shares of common stock.

(12) Represents  options  to  purchase  55,000  shares  of  common  stock.

(13) Represents  options  to  purchase  50,000  shares  of  common  stock.
</TABLE>

ITEM  13.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS
-------------------------------------------------------------

Please see the discussion under  "Recent Developments" in Part I, Item 1 of this
Form  10-K.


                                      -33-
<PAGE>
                                     PART IV

ITEM  14.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  REPORTS ON FORM 8-K
--------------------------------------------------------------------------------

(a)  FINANCIAL  STATEMENTS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  EXHIBITS

The  consolidated  financial  statements  and  financial  statement  schedule of
SafeGuard  Health  Enterprises, Inc. filed as part of this 2000 Annual Report on
Form  10-K  are listed in the accompanying Index to Financial Statements on Page
F-1.  An  "Exhibit  Index"  is  included in this 2000 Annual Report on Form 10-K
beginning  on  Page  E-1. All Exhibits are either attached hereto or are on file
with  the  Securities  and  Exchange  Commission.

(b)  REPORTS  ON  FORM  8-K

A  Current  Report on Form 8-K dated as of March 6, 2001 was filed with the SEC,
reporting  that  the Company completed the conversion of the $8 million investor
senior  loan, the outstanding balance of $7.0 million under the revolving credit
facility,  the  $32.5  million senior notes payable, and the accrued interest on
the revolving credit facility and the senior notes payable, to 300,000 shares of
convertible  preferred  stock.  As  a  result of the conversion transaction, the
previously existing common stockholders of the Company now own approximately 14%
of the common stock interests of the Company. The above-described report on Form
8-K  also  reported  the sale of the convertible preferred stock that would have
been  issuable  to  the  holder  of  the  revolving  credit facility, to certain
officers  and  directors  of  the  Company,  and  to  another stockholder of the
Company.

The  above-described  report  on  Form  8-K dated as of March 6, 2001, is hereby
incorporated  by  reference in this 2000 Annual Report on Form 10-K for the year
ended  December  31,  2000.


                                      -34-
<PAGE>
                                   SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the  registrant  has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized.

<TABLE>
<CAPTION>
                        SAFEGUARD HEALTH ENTERPRISES, INC.

<S>                                                 <C>
  By: /s/ James E. Buncher                          Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  James E. Buncher
  President, Chief Executive Officer and Director
  (Principal Executive Officer)

  By: /s/ Dennis L. Gates                           Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  Dennis L. Gates
  Senior Vice President, Chief Financial Officer
  and Director (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has  been  signed below by the following persons on behalf of the registrant and
in  the  capacities  and  on  the  dates  indicated.

  By: /s/ James E. Buncher                          Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  James E. Buncher
  President, Chief Executive Officer and Director

  By: /s/ Steven J. Baileys                         Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  Steven J. Baileys, D.D.S.
  Chairman of the Board of Directors

  By: /s/ Ronald I. Brendzel                        Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  Ronald I. Brendzel, J.D.
  Senior Vice President, General Counsel,
  Secretary and Director

  By: /s/ Dennis L. Gates                           Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  Dennis L. Gates
  Senior Vice President, Chief Financial
  Officer and Director

  By: /s/ Jack R. Anderson                          Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  Jack R. Anderson
  Director

  By: /s/ Stephen J. Blewitt                        Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  Stephen J. Blewitt
  Director

  By: /s/ Leslie B. Daniels                         Date:          March 29, 2001
--------------------------------------------------  -----------------------------
  Leslie B. Daniels
  Director
</TABLE>


                                      -35-
<PAGE>
                                  EXHIBIT INDEX

EXHIBIT
NUMBER          DESCRIPTION
------   -----------------------------------------------------------------------

2.1      Plans  of  Acquisition  (6)
3.1      Articles  of  Incorporation  (4)
3.1.1    Amended  and  Restated  Certificate  of  Incorporation  (12)
3.1.2    Certificate  of  Designation  of  Preferred  Stock  (12)
3.2      Bylaws  (3)
10.1     1984  Stock  Option  Plan  (2)
10.2     Stock  Option  Plan  Amendment  (1)
10.3     Stock  Option  Plan  Amendment  (4)
10.4     Stock  Option  Plan  Amendment  (5)
10.5     2000  Stock  Option  Plan  Amendment
10.6     Form  of  Employment  Agreement  between  the  Company  and  the  Named
         Executive  Officers
10.7     Form  of  Rights  Agreement,  dated  as  of March 22, 1996, between the
         Company  and  American  Stock  Transfer  and  Trust Company, as Rights
         Agent (6)
10.8     Default  Forbearance  Agreement  and  Irrevocable Power of Attorney (7)
10.9     First  Waiver  and  Amendment  to  Note  Purchase  Agreement  (8)
10.10    Amended  and  Restated  Loan  and  Security  Agreement  (8)
10.11    Debenture  and  Note  Purchase  Agreement  (9)
10.12    Stockholder  Agreement  (9)
10.13    First  Amendment  to  Debenture  and  Note  Purchase  Agreement  (10)
10.14    Second  Amendment  to  Debenture  and  Note  Purchase  Agreement  (10)
10.15    Term  Sheet  Agreement  dated  as  of  March  1,  2000  (11)
10.16    Loan  Document  and  Purchase  Agreement  (12)
10.17    Agreement  among  Stockholders  and  the  Company  (12)
10.18    Registration  Rights  Agreement  between  certain Stockholders and the
         Company  (12)
10.19    Consulting  Agreement  between  the  Company  and  Steven  J.  Baileys
21.1     Subsidiaries  of  the  Company
23.1     Independent  Auditor's  Consent
_________________________________________

(1)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the Company's Registration Statement on Form S- 1 filed as of September 12,
     1983  (File  No.  2-86472).
(2)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Registration Statement on Form S-1 filed as of July 3, 1984
     (File  No.  2-92013).
(3)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report of Form 10-K for the year ended December 31,
     1987.
(4)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report of Form 10-K for the year ended December 31,
     1989.
(5)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report of Form 10-K for the year ended December 31,
     1992.
(6)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  September  27,  1996.
(7)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     1998.
(8)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  June  4,  1999.
(9)  Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  June  30,  1999.
(10) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  October  5,  1999.
(11) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  March  16,  2000.
(12) Incorporated  by  reference herein and disclosed and filed as an exhibit to
     the  Company's  Report  on  Form  8-K  dated  as  of  March  6,  2001.


                                      E-1
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                       INDEX  TO  FINANCIAL  STATEMENTS


                                                                            PAGE
                                                                            ----

Independent  Auditors'  Report. . . . . . . . . . . . . . . . . . . . . . . F-2

Financial  Statements:

     Consolidated  Balance  Sheets. . . . . . . . . . . . . . . . . . . . . F-3

     Consolidated  Statements  of  Operations . . . . . . . . . . . . . . . F-4

     Consolidated  Statements  of  Stockholders'  Equity (deficit). . . . . F-5

     Consolidated  Statements  of  Cash  Flows. . . . . . . . . . . . . . . F-6

     Notes  to  Consolidated  Financial  Statements . . . . . . . . F-7 to F-24

Financial  Statement  Schedule:

     Schedule  II  -  Valuation  and  Qualifying  Accounts. . . . . . . .  F-25


                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


To  the  Board  of  Directors  and Shareholders of SafeGuard Health Enterprises,
Inc.:

We have audited the accompanying consolidated balance sheets of SafeGuard Health
Enterprises,  Inc.  and subsidiaries (the "Company") as of December 31, 2000 and
1999,  and  the  related  consolidated  statements  of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 2000. Our audits also included the financial statement schedule for
the years ended December 31, 2000, 1999, and 1998, included in the Index at Item
14(a)(2).  These  consolidated  financial  statements  and  financial  statement
schedule  are the responsibility of the Company's management. Our responsibility
is  to  express  an  opinion on the financial statements and financial statement
schedule  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements  are free of material misstatement. An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our  opinion,  such consolidated financial statements present fairly, in all
material  respects, the financial position of SafeGuard Health Enterprises, Inc.
and  subsidiaries  as  of  December  31, 2000 and 1999, and the results of their
operations  and their cash flows for each of the three years in the period ended
December  31,  2000, in conformity with accounting principles generally accepted
in  the  United  States  of  America.  Also,  in  our opinion, such consolidated
financial  statement  schedule,  when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken  as  a whole, presents fairly, in all
material  respects,  the  information  set  forth  therein.

DELOITTE  &  TOUCHE  LLP

Costa Mesa, California
March  21,  2001


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                              SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                           CONSOLIDATED BALANCE SHEETS
                                         AS OF DECEMBER 31, 2000 AND 1999
                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                                                          PRO  FORMA
                                                                             2000         2000       1999
                                                                        --------------  ---------  ---------
<S>                                                                     <C>             <C>        <C>
                                                                         (unaudited)
                                               ASSETS                   (see Note 14)

Current assets:
    Cash and cash equivalents                                           $       1,381   $  1,381   $  1,639
    Investments available-for-sale, at fair value                              15,321     15,321      4,642
    Accounts receivable, net of allowances of
         $868 in 2000 and $1,054 in 1999                                        2,778      2,778      2,978
    Other current assets                                                        1,788      1,788      1,121
                                                                        --------------  ---------  ---------
        Total current assets                                                   21,268     21,268     10,380

Property and equipment, net of accumulated depreciation                         2,843      2,843      4,816
Restricted cash (none in 2000 and $360 in 1999) and
    investments available-for-sale, at fair value                               2,700      2,700      2,688
Notes receivable, net of allowances of
    $2,806 in 2000 and $3,839 in 1999                                           1,750      1,750      3,505
Assets of discontinued operations transferred
    under contractual arrangements                                                 --         --      2,500
Intangible assets, net of accumulated amortization of
    $342 in 2000 and $58 in 1999                                                4,154      4,154      4,437
Other assets                                                                      380        380        251
                                                                        --------------  ---------  ---------
        Total assets                                                    $      33,095   $ 33,095   $ 28,577
                                                                        ==============  =========  =========

                           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Accounts payable                                                    $       4,664   $  4,664   $  5,771
    Accrued interest, subject to conversion to equity (Notes 7 and 14)             --      4,990         --
    Other accrued expenses                                                      6,457      6,457      3,691
    Short-term debt, subject to conversion to equity (Notes 7 and 14)              --     47,545         --
    Other short-term debt                                                         250        250        255
    Claims payable and claims incurred but not reported                         6,876      6,876      6,437
    Deferred revenue                                                            1,413      1,413      1,975
                                                                        --------------  ---------  ---------
        Total current liabilities                                              19,660     72,195     18,129

Long-term debt                                                                    250        250     39,545
Accrued interest                                                                   --         --      1,207
Other long-term liabilities (Note 8)                                            1,079      1,079      1,310
Commitments and contingencies (Note 10)

Stockholders' equity (deficit):
    Convertible preferred stock - $.01 par value; 1,000,000 shares
        authorized; no shares issued or outstanding in 2000 or 1999            41,250         --         --
    Common stock - $.01 par value; 40,000,000 shares authorized;
        4,747,000 shares issued and outstanding in 2000 and 1999               21,829     21,829     21,829
    Retained earnings (accumulated deficit)                                   (32,969)   (44,254)   (35,302)
    Accumulated other comprehensive income (loss)                                 119        119        (18)
    Treasury stock, at cost                                                   (18,123)   (18,123)   (18,123)
                                                                        --------------  ---------  ---------
        Total stockholders' equity (deficit)                                   12,106    (40,429)   (31,614)
                                                                        --------------  ---------  ---------
        Total liabilities and stockholders' equity (deficit)            $      33,095   $ 33,095   $ 28,577
                                                                        ==============  =========  =========
</TABLE>

                   See accompanying Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                   SAFEGUARD  HEALTH  ENTERPRISES,  INC.  AND  SUBSIDIARIES
                           CONSOLIDATED  STATEMENTS  OF  OPERATIONS
                         YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                             (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                  2000      1999       1998
                                                                --------  ---------  ---------
<S>                                                             <C>       <C>        <C>
Premium revenue, net                                            $97,251   $ 96,225   $ 97,449

Health care services expense                                     67,589     68,797     66,020
Selling, general and administrative expense                      32,182     35,803     36,259
Loss on impairment of assets                                        450     24,576      2,397
                                                                --------  ---------  ---------

Operating income (loss)                                          (2,970)   (32,951)    (7,227)

Investment and other income                                       1,431      2,067        624
Interest expense on debt that became subject to
conversion to equity in 2000 (Notes 7 and 14)                    (4,801)    (5,610)    (3,197)
Other interest expense                                             (112)      (245)    (1,114)
                                                                --------  ---------  ---------

Income (loss) before income taxes and discontinued operations    (6,452)   (36,739)   (10,914)
Income tax expense (benefit)                                         --     10,934     (3,406)
                                                                --------  ---------  ---------

Income (loss) before discontinued operations                     (6,452)   (47,673)    (7,508)
Discontinued operations:
  Loss from assets transferred under contractual arrangements
    (net of income tax benefit of $2,087 in 1999)                (2,500)    (4,363)        --
  Loss from operations to be disposed of
    (net of income tax benefit of $1,554 in 1998)                    --         --     (2,430)
                                                                --------  ---------  ---------

  Loss from discontinued operations                              (2,500)    (4,363)    (2,430)
                                                                --------  ---------  ---------

    Net income (loss)                                           $(8,952)  $(52,036)  $ (9,938)
                                                                ========  =========  =========

Basic and diluted net income (loss) per share:
  Income (loss) from continuing operations                      $ (1.36)  $ (10.04)  $  (1.58)
  Income (loss) from discontinued operations                      (0.53)     (0.92)     (0.51)
                                                                --------  ---------  ---------

      Net income (loss)                                         $ (1.89)  $ (10.96)  $  (2.09)
                                                                ========  =========  =========

Weighted average basic and diluted shares outstanding             4,747      4,747      4,747
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)


                                                                          ACCUMULATED
                                                                RETAINED     OTHER
                                      NUMBER OF SHARES          EARNINGS  COMPREHENSIVE
                                    -------------------  COMMON (ACCUMULATED INCOME   TREASURY
                                     COMMON   TREASURY    STOCK   DEFICIT)   (LOSS)     STOCK      TOTAL
                                    --------  ---------  -------  ---------  -------  ---------  ---------
<S>                                 <C>       <C>        <C>      <C>        <C>      <C>        <C>
Balances, January 1, 1998             8,022     (3,275)  $21,509  $ 26,672   $ (443)  $(18,123)  $ 29,615
Net loss                                 --         --        --    (9,938)      --         --     (9,938)
Other comprehensive income:
 Net unrealized gains on
  investments available-for-sale,
  net of tax of $57                                                               89                   89
                                                                                                 ---------
Total comprehensive income (loss)                                                                  (9,849)
                                    --------  ---------  -------  ---------  -------  ---------  ---------

Balances, December 31, 1998           8,022     (3,275)   21,509    16,734     (354)   (18,123)    19,766

Net loss                                 --         --        --   (52,036)      --         --    (52,036)
Other comprehensive income:
 Net unrealized gains on
  investments available-for-sale,
  net of tax of $226                                                            336                   336
                                                                                                 ---------
Total comprehensive income (loss)                                                                 (51,700)
Issuance of stock warrants (1)           --         --       320        --       --         --        320
                                    --------  ---------  -------  ---------  -------  ---------  ---------

Balances, December 31, 1999           8,022     (3,275)   21,829   (35,302)     (18)   (18,123)   (31,614)

Net loss                                 --         --        --    (8,952)      --         --     (8,952)
Other comprehensive income:
 Net unrealized gains on
  investments available-for-sale                                                137                   137
                                                                                                 ---------
Total comprehensive income (loss)                                                                  (8,815)
                                    --------  ---------  -------  ---------  -------  ---------  ---------

Balances, December 31, 2000           8,022     (3,275)  $21,829  $(44,254)  $  119   $(18,123)  $(40,429)
                                    ========  =========  =======  =========  =======  =========  =========

                        See accompanying Notes to Consolidated Financial Statements.

<FN>
(1)  These  warrants  were  cancelled  without being exercised as of January 31, 2001,  in  connection  with
     the conversion of the Senior Notes Payable to convertible preferred stock, as discussed in Notes 7 and  4.
</TABLE>


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                       SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                           YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                          (IN THOUSANDS)

                                                                    2000       1999       1998
                                                                  ---------  ---------  ---------
<S>                                                               <C>        <C>        <C>

Cash flows from operating activities:
  Net income (loss)                                               $ (8,952)  $(52,036)  $ (9,938)
  Adjustments to reconcile net loss to net
    cash provided by (used in) operating activities:
    Loss from discontinued operations                                2,500      4,363      2,430
    Loss on impairment of assets                                       450     24,576      2,397
    Bad debt expense                                                   300        481      1,733
    Depreciation and amortization                                    2,767      3,832      3,399
    Write-off and amortization of deferred loan costs                  339      1,954        106
    Gains on sale of property and equipment and investments           (101)        --         --
    Deferred income taxes                                               --     10,569     (2,349)
  Changes in operating assets and liabilities:
    Accounts receivable                                               (100)      (114)      (821)
    Other current assets                                              (667)       370         96
    Accounts payable                                                (1,107)       853      3,461
    Accrued expenses                                                 3,266       (461)       542
    Claims payable and claims incurred but not reported                439      2,879        (73)
    Deferred revenue                                                  (562)       953       (155)
                                                                  ---------  ---------  ---------
  Net cash (used in) provided by continuing operations              (1,428)    (1,781)       828
  Net cash used in discontinued operations                              --         --     (2,779)
                                                                  ---------  ---------  ---------
    Net cash used in operating activities                           (1,428)    (1,781)    (1,951)

Cash flows from investing activities:
  Purchase of investments available-for-sale                       (42,477)   (13,267)   (10,169)
  Proceeds from sale/maturity of investments available-for-sale     31,941     13,815     11,319
  Proceeds from maturity of investments held-to-maturity                --         --      4,906
  Purchase of property and equipment                                  (646)    (1,220)    (2,357)
  Proceeds from sale of property and equipment                         218      3,500         --
  Payments received on notes receivable                              1,305        518         92
  Issuance of notes receivable                                          --       (500)      (750)
  Additions to other assets                                           (468)      (969)        --
                                                                  ---------  ---------  ---------
    Net cash (used in) provided by investing activities            (10,127)     1,877      3,041

Cash flows from financing activities:
  Borrowings on debt                                                 8,000         --      8,000
  Increase in accrued interest, subject to conversion to equity      3,783      1,207         --
  Payments on debt                                                    (255)    (2,594)    (9,692)
  Payments on other long-term liabilities                             (231)       (48)       (72)
                                                                  ---------  ---------  ---------
    Net cash provided by (used in) financing activities             11,297     (1,435)    (1,764)
                                                                  ---------  ---------  ---------
Net increase (decrease) in cash                                       (258)    (1,339)      (674)
Cash and cash equivalents at beginning of year                       1,639      2,978      3,652
                                                                  ---------  ---------  ---------

Cash and cash equivalents at end of year                          $  1,381   $  1,639   $  2,978
                                                                  =========  =========  =========

Supplementary information:
    Cash paid during the year for interest                        $    720   $  4,189   $  4,008
Supplementary disclosure of non-cash activities:
    Issuance of debt in exchange for cancellation of lease             500         --         --
</TABLE>

                    See accompanying Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  ORGANIZATION  AND  SIGNIFICANT  ACCOUNTING POLICIES
------------------------------------------------------------

SafeGuard  Health  Enterprises,  Inc.,  a  Delaware corporation (the "Company"),
provides managed care dental benefit plans, preferred provider ("PPO")/indemnity
dental insurance plans, and other related products. The Company's operations are
primarily  in  California,  Texas  and  Florida, but it also operates in several
other  states. The Company conducts its operations through several subsidiaries,
one  of  which  is  an insurance company that is licensed in several states, and
several  of  which  are  licensed  as managed care dental plans in the states in
which  they  operate.  The  Company  provides  dental  benefits to approximately
750,000  individuals through a managed care network of contracted dentists and a
preferred  provider organization of contracted dentists. The Company was founded
as  a  not-for-profit  entity  in  California  in  1974,  and was converted to a
for-profit  entity  in  1982.

The  Company  incurred  significant  net losses in each of the three years ended
December  31,  2000. During 2000, management took certain actions to improve the
Company's  operating  results and financial position. In March 2000, the Company
obtained  $8.0  million of financing, and entered into a transaction under which
substantially  all of the Company's debt was converted into equity, as discussed
in  Notes  7  and  14,  which  will  substantially reduce the Company's interest
expense.  During  the first quarter of 2000, the Company consolidated all of its
administrative  activities into its National Service Center in California, which
resulted  in  a  significant reduction in the number of employees at the Company
and  the  amount  of  office  space  used  by the Company. Also during the first
quarter  of  2000,  the  Company  reduced  its  health  care services expense by
eliminating  non-standard  payments  to  certain dental service providers. These
actions,  along  with  reductions  in  various  other  selling,  general  and
administrative expenses, have had a significant positive impact on the Company's
results of operations and financial position, beginning in the second quarter of
2000.  Management intends to further improve the Company's results of operations
by  increasing  revenue through improved customer service and customer retention
programs,  decreasing  health  care  services  expense by expanding its provider
networks,  and  making  further  reductions  in  various  selling,  general  and
administrative  expenses.  The  Company  believes these actions and its improved
financial  position  will  provide  adequate  financial resources to support its
operations  for  the  foreseeable  future.

BASIS  OF  PRESENTATION

The  consolidated  financial  statements include all the accounts of the Company
and  its  subsidiaries.  Significant intercompany accounts and transactions have
been  eliminated  in  consolidation.  The  Company's  financial  statements were
prepared  in  accordance  with  accounting  principles generally accepted in the
United  States  of  America.

BUSINESS  SEGMENT  INFORMATION

Management  measures  operating  results  on  a geographic basis and, therefore,
views  certain  geographic  areas  as  separate  operating segments. The Company
provides  essentially  the same services in all of the geographic areas in which
it  operates.  For  financial  reporting  purposes,  all the Company's operating
segments  are  aggregated  into  one  reporting  segment,  which provides dental
benefit  plans  to  employers,  individuals  and  other  purchasers.

CASH  AND  CASH  EQUIVALENTS

Investments  with  an  original maturity of three months or less are included in
cash  equivalents.

RESTRICTED  DEPOSITS  AND  MINIMUM  NET  WORTH  REQUIREMENTS

Several  of  the  Company's  subsidiaries  are subject to state regulations that
require them to maintain restricted deposits in the form of cash or investments.
The  Company  had  total  restricted deposits of $2.7 million as of December 31,
2000  and 1999. In addition, some of those subsidiaries are required to maintain
minimum  amounts  of  tangible net worth. A substantial portion of the Company's
cash and investments as of December 31, 2000 were required to meet those minimum
net  worth  requirements.


                                      F-7
<PAGE>
INVESTMENTS

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting  for Certain Investments in Debt and Equity Securities," the Company
has  determined  that  all  of  its  investments  are  properly  classified  as
"available-for-sale."  Investments  classified as available-for-sale are carried
at  fair  value, based on quoted market prices, and unrealized gains and losses,
net  of  applicable  income  taxes,  are  reported  in  a  separate  caption  of
stockholders'  equity.

FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

The  accompanying  consolidated  balance  sheets include the following financial
instruments  as  of  December  31, 2000: cash and cash equivalents, investments,
accounts  receivable,  notes  receivable,  accounts  payable,  accrued expenses,
short-term  and  long-term  debt,  and other long-term liabilities. All of these
financial  instruments,  except  for notes receivable, long-term debt, and other
long-term  liabilities,  are  current assets or current liabilities. The current
assets  are  expected  to  be  realized, and the current liabilities, except for
those  subject  to  conversion  to equity (see Note 14) are expected to be paid,
within a short period of time. Therefore, the carrying amount of these financial
instruments approximates fair value. Notes receivable, which are long-term, have
been written down to the Company's estimate of their net realizable value, which
approximates  fair  value.  Long-term  debt  and other long-term liabilities are
stated  at the present value of the expected future payments, which approximates
fair  value.

PROPERTY  AND  EQUIPMENT

Property  and  equipment  is recorded at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the
assets  as  follows:  leasehold  improvements - the length of the related lease,
which  ranges from 5 to 10 years; furniture, fixtures and other equipment - 3 to
7  years.  The  cost  of  maintenance and repairs is expensed as incurred, while
significant  improvements  that extend the estimated useful life of an asset are
capitalized.  Upon  the sale or other retirement of assets, the cost of any such
assets  and  the related accumulated depreciation are removed from the books and
any  resulting  gain  or  loss  is  recognized.

INTANGIBLE  ASSETS

Intangible assets at December 31, 2000 consist of goodwill and a non-competition
agreement  related  to the acquisition of a managed care dental company in 1996.
Goodwill  represents  the  excess  of the purchase price of the acquired company
over  the  fair  value  of  the net assets acquired, and is being amortized on a
straight-line  basis  over  40  years.  The  Company's  accounting  policy is to
amortize  intangible  assets  over  their  estimated  useful  lives. The Company
estimates  that  its  goodwill  has  a  useful life of 40 years from the date of
acquisition  of  the  related  entity.  See  Note 5 for the Company's policy for
assessing  recoverability  of  goodwill and a discussion of a charge to earnings
during  1999  for  impairment  of  goodwill.

LONG-LIVED  ASSETS

In  accordance  with  SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets  and  for  Long-Lived  Assets  to  be  Disposed Of,"long-lived assets are
reviewed  for  events  or  changes  in  circumstances  that  indicate that their
carrying value may not be recoverable. See Note 5 for a discussion of impairment
charges  with  respect  to  certain  long-lived  assets.

RECOGNITION  OF  PREMIUM  REVENUE  AND  HEALTH  CARE  SERVICES  EXPENSE

Premium  revenue  is  recognized  in  the period during which dental coverage is
provided to the covered individuals. Payments received from customers in advance
of  the  related  period  of  coverage are reflected on the accompanying balance
sheet  as  deferred  revenue.  Health care services expense is recognized in the
period  in  which the services are delivered. The estimated liability for claims
incurred  but not reported is based primarily on the average historical lag time
between  the  date of service and the date the related claim is submitted to the
Company,  as well as the recent trend in the aggregate amount of incurred claims
per covered individual. Since the liability for incurred but not reported claims
is  necessarily an actuarial estimate, the amount of claims eventually submitted
for  services  provided  prior  to  the balance sheet date could differ from the
estimated  liability.  Any  such  differences  are  included in the consolidated
statement  of operations for the period in which the differences are identified.


                                      F-8
<PAGE>
STOCK-BASED  COMPENSATION

SFAS  No.  123,  "Accounting for Stock-Based Compensation," provides a choice of
two different methods of accounting for stock options granted to employees. SFAS
No.  123  encourages,  but  does not require, entities to recognize compensation
expense  equal  to  the fair value of employee stock options granted. Under this
method  of accounting, the fair value of a stock option is measured at the grant
date,  and compensation expense is recognized over the period in which the stock
option  becomes  exercisable.  Alternatively,  an  entity  may choose to use the
accounting  method  described in Accounting Principles Board Opinion ("APB") No.
25,  "Accounting  for  Stock  Issued  to  Employees."  Under  APB  No.  25,  no
compensation  expense  is  generally recognized as long as the exercise price of
each  stock option is at least equal to the market price of the underlying stock
at  the  time  of  the  grant. If an entity chooses to use the accounting method
described  in  APB  No.  25,  SFAS No. 123 requires that the pro forma effect of
using  the  fair  value method of accounting on its net income be disclosed in a
note  to  the financial statements. The Company has chosen to use the accounting
method  described  in  APB  No.  25.

INCOME  TAXES

The  Company's  accounting  for income taxes is in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax  liabilities  and  assets for the expected future tax consequences of events
that  are  recognized in the Company's financial statements in different periods
than  those in which the events are recognized in the Company's tax returns. The
measurement  of deferred tax liabilities and assets is based on current tax laws
as  of the balance sheet date. The Company records a valuation allowance related
to  deferred  tax assets in the event that available evidence indicates that the
future  tax  benefits  related to the deferred tax assets may not be realized. A
valuation  allowance  is  required  when  it  is  more  likely than not that the
deferred  tax  assets  will  not  be  realized.

USE  OF  ESTIMATES  IN  FINANCIAL  STATEMENTS

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United States of America requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  the  disclosure  of  contingent  assets  and  liabilities, and the
reported  amounts  of  revenues  and  expenses. Actual results could differ from
those  estimates.

INCOME  (LOSS)  PER  SHARE

Income  (loss) per share is presented in accordance with SFAS No. 128, "Earnings
Per  Share."  Basic  earnings  (loss) per share is based on the weighted average
common  shares  outstanding,  excluding  the  effect of any potentially dilutive
securities.  Diluted  earnings (loss) per share is based on the weighted average
common  shares  outstanding,  including  the  effect of all potentially dilutive
securities.  During  the  three  years  ended December 31, 2000, the potentially
dilutive  securities  of the Company that were outstanding consisted entirely of
stock  options and warrants. Due to net losses incurred in the three years ended
December  31,  2000,  the  outstanding  stock options and warrants would have an
anti-dilutive effect on diluted loss per share in each year.  Accordingly, stock
options and warrants are excluded from the calculation of diluted loss per share
for  each of these years. Therefore, the Company's diluted loss per share is the
same  as  its  basic loss per share for the three years ended December 31, 2000.

RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133,  "Accounting  for  Derivative Instruments and Hedging Activities." SFAS No.
133  was  amended  by  SFAS  No. 137, "Accounting for Derivative Instruments and
Hedging  Activities  -  Deferral  of the Effective Date of SFAS No. 133" in June
1999,  and  by  SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain  Hedging Activities" in June 2000. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative  instruments embedded in other contracts, and for hedging activities.
SFAS  133,  as amended, requires derivatives to be reported on the balance sheet
at  fair  value,  and  was adopted effective on January 1, 2001. The adoption of
SFAS  133,  as  amended,  had  no  significant effect on the Company's financial
statements.


                                      F-9
<PAGE>
In  December  1999,  the United States Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles  to  revenue  recognition issues in financial statements. SAB 101 was
effective  for  the  Company  beginning in the fourth quarter of the year ending
December  31,  2000.  The  adoption  of SAB 101 had no significant effect on the
Company's  financial  statements.

In  March  2000,  the  FASB  issued  FASB  Interpretation  No.  44  ("FIN  44"),
"Accounting  for  Certain  Transactions Involving Stock Compensation." FIN 44 is
effective  July  1,  2000  with  respect to certain provisions applicable to new
awards,  exchanges  of  awards  in  a  business  combination,  modifications  to
outstanding  awards,  and  changes in grantee status that occur on or after that
date.  FIN  44 addresses certain issues related to the application of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
adoption  of  FIN  44  had  no  significant  effect  on  the Company's financial
statements.

RECLASSIFICATION

Certain  amounts  in  the  financial  statements  for  prior  years  have  been
reclassified  to  conform  to  the  current  year  presentation.

NOTE  2.  DISCONTINUED  OPERATIONS
----------------------------------

SALE  OF  DISCONTINUED  OPERATIONS

In  February  1998  the  Company announced the discontinuance of its orthodontic
practices.  In April 1998 the Company sold all of its orthodontic practices in a
single  transaction  for  consideration  consisting  of $15.0 million of 30-year
promissory  notes,  which  were  secured  by  all  the assets of the purchasers,
including  the  assets  sold  in  the transaction. The assets of the orthodontic
practices  sold  consisted  primarily  of accounts receivable, supply inventory,
leasehold  improvements  and  dental  equipment.

The  operating results of the discontinued orthodontic practices are included in
the  accompanying  consolidated  statement of operations under the caption "Loss
from  operations to be disposed of." Net revenue of the discontinued operations,
which  is  reflected under the caption "Loss from operations to be disposed of,"
was  $1.9  million  during  the  year  ended  December  31,  1998.

ACCOUNTING  TREATMENT  OF  CERTAIN  SALE  TRANSACTIONS

In  1996  the  Company  announced  the  discontinuance  of  its  general  dental
practices,  all  of  which  were  sold in 1996 and 1997. A number of the general
dental  practices sold in 1997 were sold to a single purchaser (the "Purchaser")
in  exchange  for  $8.0 million of long-term promissory notes. In April 1998 the
Company  also sold all of its orthodontic practices to the Purchaser in exchange
for  $15.0  million  of  long-term promissory notes. During 1997 and 1998, other
entities  that  purchased  four  other general dental practices from the Company
conveyed  those practices to the Purchaser in exchange for the assumption of the
related  promissory notes payable to the Company. At the time of the conveyances
of  these  practices  to  the  Purchaser,  the  related  promissory notes had an
aggregate  outstanding  principal balance of $1.9 million. During 1997 and 1998,
the  Company loaned a total of $1.6 million to the Purchaser, which was used for
working  capital  purposes  by  the  Purchaser.

Because  management  concluded that the Purchaser would not be able to repay the
promissory  notes  from  sources  other  than  the  operations  of the purchased
practices,  the  Company  did  not  treat the transactions with the Purchaser as
sales for accounting purposes. Accordingly, the related promissory notes and the
working  capital  loans  have  not  been  reflected  in  the Company's financial
statements.  Instead,  the  historical  cost  of  the  net assets of the related
general  dental  and  orthodontic practices, less the interest payments received
from  the Purchaser, has been reflected on the Company's balance sheet under the
caption  "Assets  of  discontinued  operations  transferred  under  contractual
arrangements,"  which  was  stated  at estimated realizable value. The Company's
financial statements do not reflect any gains on these sale transactions, and do
not  reflect  any  interest income on the related promissory notes. In addition,
the  carrying  values of the promissory notes related to the four general dental
practices  that  were transferred to the Purchaser in 1997 and 1998 were reduced
to  the  historical  cost  of  the  net  assets  of the related practices. These
reductions  are  included  in the accompanying statement of operations under the
caption  "Loss  from  operations to be disposed of." These assets have also been
reflected  on  the  Company's  balance  sheet  under  the  caption  "Assets  of


                                      F-10
<PAGE>
discontinued operations transferred under contractual arrangements." The working
capital  loans  were  treated as expenses at the time the loans were made, which
are  included  the  accompanying statement of operations under the caption "Loss
from  operations  to  be  disposed  of."  In  the  opinion  of  management, this
accounting  treatment  appropriately  reflects  the  economic  substance  of the
transactions,  as  distinct from the legal form of the transactions. The Company
recorded  impairment  charges  with  respect  to  the  "Assets  of  discontinued
operations  transferred  under  contractual  arrangements" in both 2000 and 1999
(see  Note  5).

SALE  OF  DISCONTINUED  OPERATIONS  TO  NEW  PURCHASER

In  October  2000,  the  Company  completed a transaction with the Purchaser and
another  third party (the "New Purchaser"), in which the assets reflected on the
Company's  balance  sheet  under  the caption "Assets of discontinued operations
transferred  under contractual arrangements" were sold. In this transaction, the
Purchaser  transferred  its  interest in the dental and orthodontic practices to
the New Purchaser, the New Purchaser paid $2.4 million to the Company and placed
an  additional $1.5 million in an escrow account for the benefit of the Company,
and  the  Company  agreed to pay certain obligations related to these practices.
These  obligations  consisted  primarily  of  payroll,  dental  office  lease
obligations,  patient  refunds,  and  the obligation to complete the orthodontic
treatments  for  managed care patients who previously paid for the treatments in
full.  These  obligations  either  had  to  be  paid  in  order  to complete the
transaction,  or  were  obligations  for  which  the Company may be contingently
liable  in  any  event. The amount of the escrow account that may be realized by
the  Company,  and  the ultimate cost of the obligations assumed by the Company,
are subject to uncertainties. Based on the Company's estimates of the outcome of
these  uncertainties, the Company estimates that it will realize no net proceeds
from  this  transaction,  after satisfaction of all the obligations assumed from
the  Purchaser.  However,  the  Company  believes  that  by  completing  this
transaction,  it  may  avoid  being  responsible  for  a  significant  amount of
contingent  lease  obligations  related  to the dental and orthodontic practices
sold  to  the  New  Purchaser,  which are described in Note 10. This transaction
resulted in a $2.5 million charge to earnings during 2000 to reduce the carrying
value  of  "Assets  of  discontinued  operations  transferred  under contractual
arrangements"  to their estimated realizable value.  See Note 5 for a discussion
of  impairment  charges that were recognized in 2000 and 1999 in connection with
this  transaction.

NOTE  3.  INVESTMENTS
---------------------

Gross  realized  gains  on  sales  of  investments were $19,000, $2,051,000, and
$815,000  for  the  years ended December 31, 2000, 1999, and 1998, respectively.
Gross  realized  losses  on  sales  of  investments  were  $1,000, $851,000, and
$1,225,000  for the years ended December 31, 2000, 1999, and 1998, respectively.
The  historical  cost of specific securities sold is used to compute the gain or
loss  on  the  sale  of  investments.  At December 31, 2000, the Company had net
unrealized  gains  of  $119,000, which is included in stockholders' equity under
the  caption  "Accumulated  other  comprehensive  income  (loss)."


<TABLE>
<CAPTION>
The  Company's  investments  as  of  December  31, 2000 are summarized below (in
thousands).

                                        COST/                                ESTIMATED
                                      AMORTIZED   UNREALIZED    UNREALIZED     FAIR
                                        COST         GAINS        LOSSES       VALUE
                                     -----------  -----------  ------------  ---------
<S>                                  <C>          <C>          <C>           <C>
 Classified as available-for-sale:
  U.S. government and its agencies   $    14,472  $        80  $        (1)  $  14,551
  State and municipal obligations            996           41           --       1,037
  Other marketable securities              2,434           --           (1)      2,433
                                     -----------  -----------  ------------  ---------

     Total available-for-sale        $    17,902  $       121  $        (2)  $  18,021
                                     ===========  ===========  ============  =========


                                      F-11
<PAGE>
The  maturity  dates  of  the Company's investments as of December 31, 2000, are
summarized  below  (in  thousands):

                                                                  COST/      ESTIMATED
                                                                AMORTIZED       FAIR
                                                                  COST         VALUE
                                                               ------------  ----------
Classified as available-for-sale:
  Due in 2001                                                  $    13,683  $    13,719
  Due in 2002 through 2005                                           3,277        3,305
  Due in 2006 through 2010                                             844          886
  Due after 2010                                                        98          111
                                                               -----------  -----------

     Total available-for-sale                                  $    17,902  $    18,021
                                                               ===========  ===========


The  Company's  investments  as  of  December  31, 1999 are summarized below (in
thousands).
                                        COST/                                 ESTIMATED
                                      AMORTIZED   UNREALIZED    UNREALIZED      FAIR
                                        COST         GAINS        LOSSES        VALUE
                                     -----------  -----------  ------------  ----------
Classified as available-for-sale:
  U.S. government and its agencies   $     5,489  $        --  $       (31)  $   5,458
  State and municipal obligations            989           12           --       1,001
  Other marketable securities                510            1           --         511
                                     -----------  -----------  ------------  ----------

    Total available-for-sale         $     6,988  $        13  $       (31)  $   6,970
                                     ===========  ===========  ============  ==========
</TABLE>

NOTE  4.  PROPERTY  AND  EQUIPMENT
----------------------------------

The  Company's  property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER  31,
                                                           ------------------
                                                             2000      1999
                                                           --------  --------
<S>                                                        <C>       <C>
  Buildings and improvements                               $    --   $   165
  Leasehold improvements                                       811       860
  Furniture, fixtures and other equipment                   10,082    10,000
                                                           --------  --------
     Total, at cost                                         10,893    11,025
  Less - accumulated depreciation and amortization          (8,050)   (6,209)
                                                           --------  --------

  Total, net of accumulated depreciation and amortization  $ 2,843   $ 4,816
                                                           ========  ========
</TABLE>

NOTE  5.  IMPAIRMENT  OF  ASSETS
--------------------------------

ASSETS  OF  DISCONTINUED  OPERATIONS  TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS

"Assets  of  discontinued operations transferred under contractual arrangements"
consists  of  the  historical  cost  of the net assets of certain general dental
practices  and  certain  orthodontic  practices that were sold by the Company in
1998  and  1997 (see Note 2). During 1999, the Company reached an oral agreement
with  the purchaser of those practices (the "Purchaser") and another third party
(the  "New  Purchaser"), under which the related promissory notes payable to the
Company  (the  "Notes") would be liquidated. Under this agreement, the Purchaser
would  convey the dental and orthodontic practices that comprised the collateral
for  the Notes to the New Purchaser, in exchange for proceeds that would be paid
to  the  Company in satisfaction of the Notes. Based on this oral agreement, the
Company recorded a $4.4 million charge to earnings (net of income tax benefit of
$2.1  million)  during  1999  to  reduce  the  carrying  value  of  "Assets  of
discontinued  operations  transferred  under  contractual arrangements" to their
estimated  realizable value. This charge is reflected on the Company's statement
of  operations under the caption "Loss from assets transferred under contractual
arrangements."


                                      F-12
<PAGE>
In  March  2000  the Company entered into a definitive agreement with respect to
the  transaction  described above. In September 2000, the Company entered into a
restructured  agreement  with  respect to this transaction, which superseded the
previous  agreement.  Based  on  the  terms  of  the restructured agreement, the
Company  recorded  a  $2.5  million charge to earnings during 2000 to reduce the
carrying  value  of  "Assets  of  discontinued  operations  transferred  under
contractual  arrangements"  to  their  revised  estimated realizable value. This
charge  is  reflected on the Company's statement of operations under the caption
"Loss  from  assets  transferred  under  contractual  arrangements."

Notes  Receivable

The Company's notes receivable consist of several notes issued by the purchasers
of  a  number  of general dental practices sold by the Company in 1996 and 1997,
and  are  related to dental practices other than those sold to the Purchaser, as
discussed  in  Note  2.  The  Company  reviews  the carrying amount of its notes
receivable  for  possible impairment on an ongoing basis, based on the estimated
collectibility  of  the notes. During 2000, the Company increased the reserve on
its  notes  receivable by recording an impairment loss of $450,000, based on the
recent  payment history of the notes, its estimate of the ability of the issuers
to  repay  the  notes,  its  estimate  of  the financial condition of the dental
practices  that  comprise  the collateral for the notes, and its estimate of the
value  of  the  assets  of  those  practices.

In  1998,  in  an  effort  to  liquidate  assets, the Company made offers to the
issuers  of these notes receivable to reduce the outstanding principal amount of
the  notes  in  exchange  for current cash payment in satisfaction of the notes.
Accordingly,  the  Company  provided  a  $1.8  million reserve against its notes
receivable  as  of  December  31, 1998, to reflect the impact of its decision to
actively  pursue  liquidation  of  the  notes.

INTANGIBLE  ASSETS

Management  reviews  for  impairment  of  intangible assets that are used in the
Company's  operations  on  a  periodic  basis  in  accordance  with  APB No. 17.
Management deems a group of assets to be impaired if estimated discounted future
cash  flows are less than the carrying amount of the assets. Estimates of future
cash  flows  are  based  on management's best estimates of anticipated operating
results  over  the  remaining  useful  life  of  the  assets.

During  1999, the Company recognized impairment losses of $24.6 million based on
estimated  discounted  cash  flows  to  be  generated  by  each of the Company's
intangible  assets.  The  impairment  was  recognized  for  the  goodwill  and
non-compete  covenant  related  to  the  acquisition  of  First  American Dental
Benefits,  Inc.  in September 1996 ($14.7 million), the goodwill and non-compete
covenant  related to the acquisition of Advantage Dental HealthPlans in May 1997
($9.3  million),  and  the  insurance  license  acquisition costs related to the
acquisitions  of  two  insurance  companies  in  1997  and  1992 ($0.6 million).

REAL  ESTATE

During  1998 the Company moved its corporate office from a building owned by the
Company  in  Anaheim,  California  to  leased  office  space  in  Aliso  Viejo,
California.  During  the  first  quarter of 1999, the Company received a written
offer  to  purchase  the  building in Anaheim and other related assets. Based on
this  offer,  the  Company  recorded  an  impairment loss of $569,000 in 1998 to
reduce the carrying value of the building to the estimated net proceeds from the
expected  sale,  which  were  $3.6  million.  This  accounting  treatment  is in
accordance  with  SFAS  No. 121, "Accounting for Impairment of Long-lived Assets
and  for Long-lived Assets to be Disposed of." In May 1999, the Company sold the
building  for $3.5 million, including $3.0 million in cash and a promissory note
for  $500,000,  which  was  paid  in  full  in  2000.

NOTE  6.  CLAIMS  PAYABLE  AND  CLAIMS  INCURRED  BUT  NOT  REPORTED
--------------------------------------------------------------------

The  Company is responsible for paying claims submitted by dentists for services
provided to patients who have purchased dental coverage from the Company. Claims
payable  are  claims  submitted by the dentists but not yet paid by the Company.
Claims  incurred  but  not  reported  is  an estimate of the claims for services
delivered prior to the balance sheet date, but which have not yet been submitted
to the Company as of the balance sheet date. The estimate of claims incurred but
not  reported  is based primarily on the average historical lag time between the
date  of  service and the date the related claim is submitted to the Company, as
well  as the recent trend in the aggregate amount of incurred claims per covered
individual.  Since  the  liability  for  incurred  but  not  reported  claims is
necessarily an actuarial estimate, the amount of claims eventually submitted for
services  provided  prior  to  the  balance  sheet  date  could  differ from the
estimated  liability.  Any  such  differences  are  included in the consolidated
statement  of operations for the period in which the differences are identified.


                                      F-13
<PAGE>
PPO/indemnity claims are related to services delivered to individuals covered by
the  Company's  indemnity  insurance  plans,  some  of which contain a preferred
provider organization ("PPO") feature. Specialist referral claims are related to
specialist  services  delivered  to individuals covered by the Company's managed
care  plans.  Supplemental  claims  are  related to primary care dental services
delivered  to individuals covered by the Company's managed care plans. A summary
of  the  activity  in  the  liability  for each type of claim is shown below (in
thousands). The activity in the liability for supplemental payments is not shown
for  1998  because  it  was  not  material  in  that  year.

<TABLE>
<CAPTION>
                                   PPO/       SPECIALIST
                                 INDEMNITY     REFERRAL     SUPPLEMENTAL
                                  CLAIMS        CLAIMS        PAYMENTS       TOTAL
                                -----------  ------------  --------------  ---------
<S>                             <C>          <C>           <C>             <C>
Balance at January 1, 1998      $    2,150   $     1,481                   $  3,631

Incurred claims related to:
  Current year - 1998               16,909         7,251                     24,160
  Prior years                          794          (338)                       456
Paid claims related to:
  Current year - 1998              (14,636)       (5,966)                   (20,602)
  Prior years                       (2,944)       (1,143)                    (4,087)
                                -----------  ------------  --------------  ---------

Balance at December 31, 1998    $    2,273   $     1,285                   $  3,558
                                ===========  ============  ==============  =========

Balance at January 1, 1999      $    2,273   $     1,285   $         400   $  3,958

Incurred claims related to:
  Current year - 1999               18,722         8,292           6,730     33,744
  Prior years                          186          (517)             42       (289)
Paid claims related to:
  Current year - 1999              (14,497)       (6,932)         (5,879)   (27,308)
  Prior years                       (2,459)         (767)           (442)    (3,668)
                                -----------  ------------  --------------  ---------

Balance at December 31, 1999         4,225         1,361             851      6,437

Incurred claims related to:
  Current year - 2000               24,747         6,971           4,634     36,352
  Prior years                          226          (351)           (122)      (247)
Paid claims related to:
  Current year - 2000              (19,528)       (5,942)         (4,006)   (29,476)
  Prior years                       (4,451)       (1,010)           (729)    (6,190)
                                -----------  ------------  --------------  ---------

Balance at December 31, 2000    $    5,219   $     1,029   $         628   $  6,876
                                ===========  ============  ==============  =========
</TABLE>

The  liability  for  claims  payable  and  claims  incurred  but not reported is
adjusted  each  year to reflect any differences between claims actually paid and
previous estimates of the liability. During each of the years ended December 31,
2000,  1999,  and  1998,  the  aggregate adjustments to the liability to reflect
these  differences,  which  are reflected in the above table, were not material.


                                      F-14
<PAGE>
NOTE  7.  NOTES  PAYABLE  AND  LONG-TERM  DEBT
----------------------------------------------

Notes  payable  and  long-term  debt  consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                DECEMBER  31,
                             -------------------
                               2000       1999
                             ---------  --------
<S>                          <C>        <C>
  Investor senior loan       $  8,000   $    --
  Revolving credit facility     7,045     7,045
  Senior notes payable         32,500    32,500
  Other                           500       255
                             ---------  --------
     Total debt                48,045    39,800
  Less - current portion      (47,795)     (255)
                             ---------  --------

     Long-term debt          $    250   $39,545
                             =========  ========
</TABLE>

On  March  1, 2000, the Company entered into a recapitalization transaction with
an  investor  group (the "Investors"), the revolving credit facility lender (the
"Bank"),  and the holder of the senior notes payable (the "Senior Note Holder").
In  this  transaction,  the  Investors loaned $8.0 million to the Company in the
form  of  an  investor  senior  loan,  which  was due April 30, 2001, and had an
interest  rate  of  10%  annually.  The Investors, the Bank, and the Senior Note
Holder  agreed to convert the $8.0 million investor senior loan, the outstanding
balance  of  $7.0  million  under  the  revolving credit facility, and the $32.5
million  of  senior  notes  payable  to  convertible preferred stock, subject to
regulatory  and  stockholder  approval. This conversion to convertible preferred
stock  was  completed  as  of  January  31,  2001,  as  discussed  in  Note  14.

In  connection  with  the  recapitalization  transaction,  both the Bank and the
Senior  Note  Holder  agreed not to demand or accept any payment of principal or
interest  under  their  respective  credit  agreements,  and  not  to  take  any
enforcement  actions of any kind under those agreements until April 30, 2001. As
of  December  31,  2000,  the  Company was subject to various financial covenant
requirements  under  the  credit  agreements  with  the Bank and the Senior Note
Holder. The Company was not in compliance with those requirements as of December
31,  2000.  Accordingly,  these outstanding balances are reflected as short-term
debt  on  the  Company's  balance  sheet  as  of  December  31,  2000.

In  1999, in connection with a transaction in which the Company restructured its
credit  agreement  with  the  Senior Note Holder, the Company issued warrants to
purchase  382,000  shares  of its common stock for $4.51 per share to the Senior
Note  Holder.  The warrants were exercisable at any time from January 1, 2000 to
December  31,  2003. The Company estimated that the fair value of these warrants
was  $320,000,  based  on  an option-pricing model. Accordingly, this amount was
charged to interest expense and credited to stockholders' equity during 1999. In
connection  with the recapitalization transaction, the Senior Note Holder agreed
to  cancel  the  warrants upon conversion of the Company's outstanding debt into
convertible preferred stock. The warrants were cancelled as of January 31, 2001,
in  connection  with  the  conversion of the Senior Notes Payable to convertible
preferred  stock  (see  Note  14).

In 1998, the Company entered into an $8.0 million revolving credit facility with
the  Bank,  under  which  $7.0 million was outstanding at December 31, 2000. The
interest  rate  on the outstanding balance as of December 31, 2000, was equal to
the  bank's  prime  rate  plus  3.0  % (12.5% at December 31, 2000). The loan is
secured  by  all  assets  of  the  Company,  including  investments,  accounts
receivable, notes receivable, property and equipment, and intangible assets, and
a  negative  pledge  on  the  stock  of  all  the  Company's  subsidiaries.  The
outstanding  balance  under  the  credit  facility  was converted to convertible
preferred  stock  as  of  January  31,  2001,  as  discussed  in  Note  14.

In  1997,  the Company issued $32.5 million of unsecured senior notes payable to
the  Senior  Note Holder. The senior notes are payable in annual installments of
$6.5 million on each September 30, beginning in 2001, with a final maturity date
of  September  30,  2005.  The  interest rate on the notes was fixed at 8.91% at
December  31,  2000.  The  senior  notes  payable  were converted to convertible
preferred  stock  as  of  January  31,  2001,  as  discussed  in  Note  14.


                                      F-15
<PAGE>
Annual  maturities  of  debt  are  as  follows,  as  of  December  31,  2000 (in
thousands):

     2001                      $     47,795
     2002                               250
                               ------------

                Total debt     $     48,045
                               ============

NOTE  8.  OTHER  LONG-TERM  LIABILITIES
---------------------------------------

Other  long-term  liabilities  consist  of  accrued lease obligations related to
equipment that is no longer used by the Company, accrued rent expense related to
an  office lease with monthly payments that increase over the term of the lease,
deferred compensation payments to a former employee of an entity acquired by the
Company  in  1996, security deposits collected in connection with subleases, and
an accrued consulting obligation related to an entity acquired by the Company in
1997.

Annual  maturities of other long-term liabilities are as follows, as of December
31,  2000  (in  thousands):

     2001                                          $        --
     2002                                                  457
     2003                                                  133
     2004                                                  192
     2005  and  thereafter                                 297
                                                   -----------

          Total  other  long-term  liabilities     $     1,079
                                                   ===========

NOTE  9.  INCOME  TAXES
-----------------------

The  Company's  federal and state income tax expense (benefit) is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              ----------------------------
                                                                 2000     1999      1998
                                                              --------  --------  --------

<S>                                                           <C>       <C>       <C>
  Income tax expense (benefit) from continuing operations:
    Currently payable - Federal                               $     --  $   648   $   (31)
                        State                                       --      358        11
  Deferred - Federal                                                --    6,613    (2,667)
             State                                                  --    3,315      (719)
                                                              --------  --------  --------
    Income tax expense (benefit) from continuing operations         --   10,934    (3,406)
  Income tax expense (benefit) from discontinued operations         --   (2,087)   (1,554)
                                                              --------  --------  --------

  Total income tax expense (benefit)                          $     --  $ 8,847   $(4,960)
                                                              ========  ========  ========
</TABLE>


                                      F-16
<PAGE>
A  reconciliation  of the expected federal income tax expense (benefit) based on
the  statutory  rate to the actual income tax expense (benefit) on the loss from
continuing  operations  is  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                            YEARS  ENDED  DECEMBER  31,
                              --------------------------------------------------------
                                     2000               1999               1998
                              -----------------  ------------------  -----------------
                               AMOUNT      %      AMOUNT       %      AMOUNT      %
                              --------  -------  ---------  -------  --------  -------
<S>                           <C>       <C>      <C>        <C>      <C>       <C>

Expected federal income tax
  expense (benefit)           $(2,194)  (34.0)%  $(12,491)  (34.0)%  $(3,820)  (35.0)%
State income tax expense
(benefit), net of effect
on federal income tax              --       --      1,903      5.2      (497)    (4.5)
Tax-exempt interest income        (13)    (0.2)       (17)    (0.1)      (19)    (0.2)
Goodwill amortization
  and impairments                  42      0.7      8,190     22.3       254      2.3
Transaction loss                   --       --         --       --       670      6.1
Other items                        59      0.9        468      1.3         6      0.1
Change in valuation
  allowance                     2,106     32.6     12,881     35.1        --       --
                              --------  -------  ---------  -------  --------  -------
  Actual income tax
  expense (benefit)           $    --       --%  $ 10,934     29.8%  $(3,406)  (31.2)%
                              ========  =======  =========  =======  ========  =======
</TABLE>

<TABLE>
<CAPTION>
Deferred  tax  assets  (liabilities)  are  related  to  the  following items (in
thousands):

                                                   DECEMBER  31,
                                                --------------------
                                                  2000       1999
                                                ---------  ---------
<S>                                             <C>        <C>

Current deferred tax assets (liabilities):
  Accrued expenses                              $  1,965   $    429
  Bad debt allowance                                 378      1,038
  State income taxes                                (958)       (18)
  Prepaid expenses                                  (211)      (188)
  Other                                                2        279
                                                ---------  ---------
    Total current deferred tax assets              1,176      1,540
  Valuation allowance                             (1,176)    (1,540)
                                                ---------  ---------

      Net current deferred tax assets           $     --   $     --
                                                =========  =========

Long-term deferred tax assets (liabilities):
  Net operating loss carry-forward              $ 13,651   $  4,994
  Depreciation and amortization                    3,384      2,373
  Bad debt reserves on notes receivable            1,263      1,645
  Gain on sale of dental offices                    (898)     6,696
  Other                                               40         18
                                                ---------  ---------
    Total long-term deferred tax assets           17,440     15,726
  Valuation allowance                            (17,440)   (15,726)
                                                ---------  ---------

    Net long-term deferred tax assets           $     --   $     --
                                                =========  =========
</TABLE>

During  each of the years ended December 31, 2000 and 1999, the Company recorded
a  charge  to  earnings  to  increase  the  valuation  allowance against its net
deferred tax assets.  As of December 31, 2000 and 1999, the valuation allowances
were  equal  to  the  total amounts of net deferred tax assets, which were $18.6
million  and  $17.3  million as of December 31, 2000 and 1999, respectively. The
Company's  deferred tax assets have been fully reserved due to uncertainty about
whether  they  will be realized in the future, primarily due to operating losses
incurred  by the Company during the three years ended December 31, 2000, and the
existence  of  significant net operating loss carry-forwards. As of December 31,
2000,  the  Company  had net operating loss carry-forwards for federal and state
tax  purposes  of  approximately $35.3 million and $18.6 million, which begin to
expire  in  2018 and 2003, respectively. These net operating loss carry-forwards
were  significantly  reduced  as  a  result of a transaction that occurred as of
January  31,  2001,  as  discussed  in  Note  14.


                                      F-17
<PAGE>
NOTE  10.  COMMITMENTS  AND  CONTINGENCIES
------------------------------------------

LEASE  COMMITMENTS

The  Company  leases several administrative offices and various office equipment
under  operating  leases.  Rent  expense  under  these  operating  leases  was
$3,986,000,  $4,289,000,  and  $2,306,000 in 2000, 1999, and 1998, respectively.
The  Company  has  subleased certain of its office space to third parties, which
office  space  is  subject  to  lease  agreements  for which the Company remains
contingently liable in the event the sublessees fail to make the lease payments.
Future  minimum  rental  payments required under non-cancelable operating leases
are  as  follows,  net of payments expected to be received pursuant to subleases
(in  thousands):

<TABLE>
<CAPTION>
                                      TOTAL      EXPECTED       NET
                                      LEASE      SUBLEASE   CONTINGENT
                                   OBLIGATION    PAYMENTS   OBLIGATION
                                   -----------  ----------  -----------
<S>                                <C>          <C>         <C>
         2001                      $     3,066  $    (683)  $     2,383
         2002                            2,551       (291)        2,260
         2003                            1,993         --         1,993
         2004                            1,938         --         1,938
         2005                            1,838         --         1,838
         Thereafter                      4,902         --         4,902
                                   -----------  ----------  -----------

           Total minimum payments  $    16,288  $    (974)  $    15,314
                                   ===========  ==========  ===========
</TABLE>

LITIGATION

The  Company  is a defendant in various lawsuits arising in the normal course of
business.  In  the  opinion  of  management,  the  ultimate  outcome of existing
litigation  will  not have a material effect on the Company's financial position
or  results  of  operations.

In  December  1999,  a  stockholder lawsuit against the Company was filed, which
alleged that the Company and certain of its officers violated certain securities
laws  by  issuing a series of alleged false and misleading statements concerning
the  Company's  publicly reported revenues and earnings during a specified class
period.  On  September  12, 2000, after the plaintiffs had filed a first amended
complaint,  the  Federal  District  Trial  Court  dismissed  the  lawsuit  with
prejudice,  stating  that the plaintiffs had failed to state a claim against the
Company.  On October 6, 2000, the plaintiffs filed an appeal of the dismissal of
the lawsuit, and that appeal is currently pending. The Company has directors and
officers  liability  insurance  and intends to vigorously contest the appeal. In
the  opinion  of management, the ultimate outcome of this matter will not have a
material  adverse  effect  on  the  Company's  financial  position or results of
operations.

CONTINGENT  LEASE  OBLIGATIONS

The Company sold its general dental practices and orthodontic practices in 1996,
1997 and 1998, as discussed in Note 2. The Company also re-sold certain of these
practices  in  October  2000,  after the original purchaser of a number of these
practices  defaulted  on its obligations to the Company, as discussed in Note 2.
In  connection  with the sale and re-sale of those practices, all the purchasers
of  the  practices  agreed  to  make the remaining lease payments related to the
dental  offices  used  by  those  practices.  However,  the  Company  remains
contingently  liable for the lease payments in the event the purchasers of those
practices  fail  to  make  the  payments. As of December 31, 2000, the aggregate
contingent  liability  of  the  Company  related  to  all  of  these  leases was
approximately $5.5 million over the terms of the various lease agreements, which
expire  at  various dates through 2007.  Management has not been notified of any
defaults  that  would  materially  affect  the Company's financial position. The
aggregate  contingent  lease  obligation  of  $5.5  million excludes $425,000 of
estimated  lease obligations that have been accrued as of December 31, 2000, due
to  failures  by  the entities to make the lease payments under the leases which
were assigned by the Company. This estimated lease obligation is included in the
accompanying  consolidated  balance  sheet  under  the  caption  "Other  accrued
expenses."


                                      F-18
<PAGE>
EMPLOYEE  RETIREMENT  PLAN

The  Company  maintains  a  retirement plan under Section 401(k) of the Internal
Revenue  Code  (the  "Plan").  Under  the  Plan, employees are permitted to make
contributions  to  a  retirement account through payroll deductions from pre-tax
earnings.  Employees  are  fully  vested  in  contributions  made  from  payroll
deductions.  In  addition,  the  Company may, at its discretion, make additional
contributions  to the Plan. The Company made no contributions to the Plan during
the  three  years  ended  December  31,  2000.

PROFESSIONAL  LIABILITY  INSURANCE

The  Company  maintains professional liability insurance that covers losses on a
claims  made  basis.

NOTE  11.  CAPITAL  STOCK
-------------------------

STOCK  REPURCHASES

As  of  December  31,  2000, the Company had 3,274,788 shares of treasury stock,
which  were  acquired  by  the  Company  for  an  aggregate of $18.1 million. In
December  2000,  the  board of directors of the Company authorized management to
repurchase  up  to 500,000 additional shares of the Company's outstanding common
stock.

STOCK  OPTION  PLAN

The Company has a stock option plan (the "Plan") that authorizes the granting of
both  incentive  and  non-qualified  stock  options  to purchase an aggregate of
3,000,000  shares  of  common  stock.  Either  incentive  or non-qualified stock
options may be granted to executive officers and other employees of the Company.
Only non-qualified stock options may be granted to non-employee directors of the
Company.  Under the Plan, the exercise price of any stock option granted must be
at least equal to the market value of the Company's common stock on the date the
option is granted. The Plan is administered by the Compensation and Stock Option
Committee  of  the  board  of  directors  of  the  Company.

The  following  is  a  summary  of  activity  in  stock  options:

<TABLE>
<CAPTION>
                                                             YEARS  ENDED  DECEMBER  31,
                                                          ---------------------------------
                                                             2000        1999       1998
                                                          -----------  ---------  ---------
<S>                                                       <C>          <C>        <C>
  Outstanding at beginning of year                           755,300    769,800    638,017
  Stock options granted                                    2,080,000     55,000    184,000
  Stock options exercised                                         --         --         --
  Stock options canceled                                    (619,000)   (69,500)   (52,217)
                                                          -----------  ---------  ---------

  Outstanding at end of year                               2,216,300    755,300    769,800
                                                          ===========  =========  =========

  Exercisable at end of year                                 105,966    551,000    455,066

  Weighted average exercise price of options granted      $     1.00   $   3.72   $   9.11
  Weighted average exercise price of options exercised            --         --         --
  Weighted average exercise price of options canceled           9.96      12.70      12.45
  Weighted average exercise price of options outstanding        1.53       9.88      10.58
  Weighted average exercise price of options exercisable       10.39      10.39      10.10
</TABLE>


                                      F-19
<PAGE>
The following is a summary of stock options outstanding as of December 31, 2000:

<TABLE>
<CAPTION>
                    TOTAL  STOCK  OPTIONS  OUTSTANDING     STOCK  OPTIONS  EXERCISABLE
               ------------------------------------------  ---------------------------
  RANGE OF                   WEIGHTED       WEIGHTED                      WEIGHTED
  EXERCISE      NUMBER       AVERAGE         AVERAGE        NUMBER        AVERAGE
   PRICES      OF SHARES  REMAINING LIFE  EXERCISE PRICE   OF SHARES   EXERCISE PRICE
-------------  ---------  --------------  ---------------  ----------  ---------------
<C>            <C>        <S>             <C>              <C>         <C>
$    1.00      2,065,000      9.26 years  $          1.00          --  $            --
 3.44 - 3.75      55,000      8.83 years             3.72      18,333             3.72
 9.00 - 11.88     73,900      5.12 years            10.27      65,233            10.42
    15.75         22,400      5.22 years            15.75      22,400            15.75
               ---------                                   ----------

   Total       2,216,300      9.07 years  $          1.53     105,966   $        10.39
               =========                                   ==========
</TABLE>

The  weighted  average fair value of stock options granted was $0.76, $2.73, and
$5.93  per  share  during  the  years  ended  December 31, 2000, 1999, and 1998,
respectively. In accordance with SFAS No. 123, the following table shows the pro
forma  effect  of  using  the  fair value method of accounting for stock options
granted  to  employees  (in  thousands,  except  per  share  amounts):

<TABLE>
<CAPTION>
                                YEARS  ENDED  DECEMBER  31,
                               ------------------------------
                                 2000      1999       1998
                               --------  ---------  ---------
<S>                            <C>       <C>        <C>
  Net loss, as reported        $(8,952)  $(52,036)  $ (9,938)
  Pro forma net loss            (9,733)   (52,360)   (10,325)

  Loss per share, as reported    (1.89)    (10.96)     (2.09)
  Pro forma loss per share       (2.05)    (11.03)     (2.18)
</TABLE>

SFAS  No.  123  requires  a publicly-traded entity to estimate the fair value of
stock-based  compensation  by  using  an  option-pricing  model  that takes into
account  certain  facts  and assumptions. The facts and assumptions that must be
taken  into account are the exercise price, the expected life of the option, the
current  stock  price,  the expected volatility of the stock price, the expected
dividends  on  the  stock,  and  the risk-free interest rate. The option-pricing
models  commonly  used  were  developed  to  estimate  the  fair value of freely
tradable,  fully  transferable  options  without  vesting  restrictions,  which
significantly  differ from the stock options granted by the Company. The Company
estimated  the  fair value of each stock option as of the date of grant by using
the  Black-Scholes  option-pricing  model.  The  facts  and  assumptions used to
determine  the fair value of stock options granted were an average expected life
of  four  years,  expected  volatility  of 184% in 2000, 97% in 1999, and 50% in
1998,  no expected dividends, and a risk-free interest rate of approximately 6%.
The  assumptions  regarding  the  expected  life of the options and the expected
volatility  of  the  stock  price  are subjective, and these assumptions greatly
affect  the  estimated  fair  value  amounts.

NOTE  12.  INVESTMENT  AND  OTHER  INCOME
-----------------------------------------

Investment  and  other  income  consists  of  the  following  (in  thousands):

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                      -----------------------
                                                       2000    1999     1998
                                                      ------  -------  ------
<S>                                                   <C>     <C>      <C>
  Net realized gains (losses) on sale of investments  $   18  $1,200   $(410)
  Interest income                                      1,330     932     268
  Other, net                                              83     (65)    766
                                                      ------  -------  ------

     Total investment and other income                $1,431  $2,067   $ 624
                                                      ======  =======  ======
</TABLE>


                                      F-20
<PAGE>
Note 3.  UNAUDITED  SELECTED  QUARTERLY  INFORMATION
----------------------------------------------------

QUARTERLY  RESULTS  OF  OPERATIONS

Unaudited  quarterly results of operations for the years ended December 31, 2000
and  1999  are  shown below (in thousands, except per share data). The unaudited
quarterly  results  should  be read in conjunction with the accompanying audited
financial  statements.

<TABLE>
<CAPTION>
                                                        YEAR  ENDED  DECEMBER  31,  2000
                                                   ------------------------------------------
                                                     FIRST     SECOND      THIRD     FOURTH
                                                    QUARTER    QUARTER    QUARTER    QUARTER
                                                   ---------  ---------  ---------  ---------
<S>                                                <C>        <C>        <C>        <C>
  Premium revenue, net                             $ 24,463   $ 24,173   $ 24,639   $ 23,976
  Health care services expense                       17,505     17,464     17,318     15,302
  Selling, general and administrative expense         8,646      7,365      7,690      8,481
  Loss on impairment of assets                           --         --         --        450
                                                   ---------  ---------  ---------  ---------

  Operating income (loss)                            (1,688)      (656)      (369)      (257)

  Investment and other income                           259        378        478        316
  Interest expense on debt that became subject
  to conversion to equity in 2000                    (1,015)    (1,202)    (1,287)    (1,297)
  Other interest expense                                (17)       (18)       (53)       (24)
                                                   ---------  ---------  ---------  ---------
  Income (loss) before income taxes and
    discontinued operations                          (2,461)    (1,498)    (1,231)    (1,262)
  Income tax expense                                     --         --         --         --
                                                   ---------  ---------  ---------  ---------

  Income (loss) before discontinued operations       (2,461)    (1,498)    (1,231)    (1,262)
  Discontinued operations:
    Loss from assets transferred under
      contractual arrangements                           --         --     (1,750)      (750)
                                                   ---------  ---------  ---------  ---------

    Net income (loss)                              $ (2,461)  $ (1,498)  $ (2,981)  $ (2,012)
                                                   =========  =========  =========  =========

  Basic and diluted net income (loss) per share:
    Income (loss) from continuing operations       $  (0.52)  $  (0.32)  $  (0.26)  $  (0.26)
    Income (loss) from discontinued operations           --         --      (0.37)     (0.16)
                                                   ---------  ---------  ---------  ---------

    Net income (loss)                              $  (0.52)  $  (0.32)  $  (0.63)  $  (0.42)
                                                   =========  =========  =========  =========

  Weighted average basic and
    diluted shares outstanding                        4,747      4,747      4,747      4,747


                                      F-21
<PAGE>
                                                        YEAR  ENDED  DECEMBER  31,  1999
                                                   ------------------------------------------
                                                     FIRST     SECOND      THIRD     FOURTH
                                                    QUARTER    QUARTER    QUARTER    QUARTER
                                                   ---------  ---------  ---------  ---------

  Premium revenue, net                             $ 23,863   $ 23,989   $ 24,065   $ 24,308
  Health care services expense                       16,789     17,015     17,402     17,591
  Selling, general and administrative expense         8,840      9,035      9,816      8,112
  Loss on impairment of assets                           --         --     24,576         --
                                                   ---------  ---------  ---------  ---------

  Operating income (loss)                            (1,766)    (2,061)   (27,729)    (1,395)

  Investment and other income                         1,503        437       (147)       274
  Interest expense on debt that became subject
    to conversion to equity in 2000                    (865)    (1,058)    (2,759)      (928)
  Other interest expense                                (82)       (44)       (42)       (77)
                                                   ---------  ---------  ---------  ---------
  Income (loss) before income taxes and
    discontinued operations                          (1,210)    (2,726)   (30,677)    (2,126)
  Income tax expense (benefit)                         (350)      (940)    12,224         --
                                                   ---------  ---------  ---------  ---------

  Income (loss) before discontinued operations         (860)    (1,786)   (42,901)    (2,126)
  Discontinued operations:
    Loss from assets transferred under
      contractual arrangements                           --     (3,264)    (1,099)        --
                                                   ---------  ---------  ---------  ---------

    Net income (loss)                              $   (860)  $ (5,050)  $(44,000)  $ (2,126)
                                                   =========  =========  =========  =========

  Basic and diluted net income (loss) per share:
    Income (loss) from continuing operations       $  (0.18)  $  (0.38)  $  (9.04)  $  (0.45)
    Income (loss) from discontinued operations           --      (0.69)     (0.23)        --
                                                   ---------  ---------  ---------  ---------

    Net income (loss)                              $  (0.18)  $  (1.07)  $  (9.27)  $  (0.45)
                                                   =========  =========  =========  =========

  Weighted average basic and
    diluted shares outstanding                        4,747      4,747      4,747      4,747
</TABLE>

NOTE  14.  SUBSEQUENT  EVENT
----------------------------

Effective  as  of  January 31, 2001, the Company completed the conversion of the
investor senior loan ($8.0 million), the outstanding balance under the revolving
credit  facility  ($7.0  million), the senior notes payable ($32.5 million), and
the  accrued  interest  on  the  revolving  credit facility and the senior notes
payable  ($5.0  million  as  of  December  31,  2000)  into  300,000  shares  of
convertible preferred stock (see Note 7). The estimated value of the convertible
preferred  stock was $137.50 per share as of January 31, 2001, which is based on
the  closing  price of the Company's common stock on January 31, 2001, which was
$1.375 per share, and the fact that each share of convertible preferred stock is
convertible  into 100 shares of common stock. Based on this estimated value, the
conversion  transaction resulted in a gain of $11.3 million. It is expected that
there  will  be  no  income  tax  effect related to this transaction, due to the
Company's  net  operating  loss carry-forwards for tax purposes, as discussed in
Note  8.

The  accompanying  financial  statements  include an unaudited pro forma balance
sheet  as  of  December  31,  2000,  which  reflects the conversion of debt into
convertible  preferred  stock, as though the conversion had occurred on December
31,  2000, based on the actual gain on the conversion as of January 31, 2001, as
described  above.

The  convertible  preferred  stock  does  not accrue dividends of any kind. Each
share  of  convertible  preferred stock is convertible into 100 shares of common
stock  at the option of the holder. The convertible preferred stock entitles the
holder to one vote for each share of common stock into which the preferred stock
is  convertible, with respect to all matters voted on by the common stockholders
of  the  Company,  except  for  the  election  of  directors. The holders of the
convertible  preferred  stock have the right to elect a total of five members of
the  board  of  directors, and the holders of the common stock have the right to
elect  the  remaining  two  directors.  The  convertible  preferred  stock has a
liquidation  preference  over  the  common  stock.


                                      F-22
<PAGE>
As  a  result  of  the  conversion  transaction,  the previously existing common
stockholders  of  the  Company  now  own  approximately  14% of the common stock
interests  of  the  Company.  In  March  2000, in connection with the conversion
transaction, the Company agreed to place a four new directors, who represent the
holders  of  the  investor  senior  loan, the revolving credit facility, and the
senior  notes  payable, on its board of directors. Three of those directors were
placed  on  the  board  in March 2000, and the fourth director was placed on the
board  as  of January 31, 2001. These new directors constitute a majority of the
board  of  directors,  which  currently  has  a  total  of  seven  members.


                                      F-23
<PAGE>
<TABLE>
<CAPTION>
               SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                                 (IN THOUSANDS)

                                 BALANCE AT CHARGED TO CHARGED TO              BALANCE AT
                                 BEGINNING  COSTS AND   OTHER                     END
                                  OF YEAR   EXPENSES   ACCOUNTS    WRITE-OFFS   OF YEAR
                                  --------  ---------  ---------  ------------  --------
<S>                               <C>       <C>        <C>        <C>           <C>
YEAR ENDED DECEMBER 31, 1998:

Allowance for doubtful accounts:
  Accounts receivable             $  1,061  $   1,733  $      --  $      (851)  $  1,942
  Long-term notes receivable      $  2,205  $     833  $      --  $    (1,018)  $  2,020

YEAR ENDED DECEMBER 31, 1999:

Allowance for doubtful accounts:
  Accounts receivable             $  1,942  $     481  $      --  $    (1,369)  $  1,054
  Long-term notes receivable      $  2,020  $   1,819  $      --  $        --   $  3,839

YEAR ENDED DECEMBER 31, 2000:

Allowance for doubtful accounts:
  Accounts receivable             $  1,054  $     300  $      --  $      (486)  $    868
  Long-term notes receivable      $  3,839  $     450  $      --  $    (1,483)  $  2,806
</TABLE>


                                      F-24
<PAGE>